Home Ownership, The Smart Way

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NewsOne would like to welcome Financial Blogger Ryan Mack to our team. Ryan has taken on the likes of the Kardashian sisters, Russell Simmons, and Rent-A-Center on our site. Mack will contribute a weekly piece  every Thursday at 1PM where he will answer your questions on finance.

To own your own home is not a small venture, and requires considerable thought and planning. I am sure that those who have purchased a house would agree that the process is very long, tedious, time consuming and perpetually costly. Whichever home you purchase, you must make that decision responsibly. The amount that you pay on your home, and the payments that you are required to make to retain your property will have a huge effect on your future financial state.

If you are not wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household’s total annual realized income, according to The Millionaire Next Door by Thomas J. Stanley and William D. Danko.

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While I believe that the above statement over-simplifies the situation, the thought behind it is very true. If you want to purchase a home, you should “act your own wage.” Make sure that you purchase a home within the limits of what you can afford to pay. I have witnessed many people going out to look for a new home without any idea of how much they can afford to pay. I urge everyone to take the time to do the math before beginning the hunt for a new home.

The sub-prime credit market crash beginning in 2006 resulted from a nation of individuals who failed to properly prepare, making them more susceptible to predatory lending practices. Don’t let the mortgage broker do the math, as he or she is pushing for the highest loan to make the most commission. He or she will find a way to stretch you well beyond your means, making a nice commission, while you lose your sanity and happiness trying to over-extend your budget to make your mortgage payments — this is the essence of predatory lending.

Remember that everyone who has ever filed for bankruptcy or foreclosure was initially approved for a loan from the bank. Know what you can and cannot afford before you meet with a mortgage broker. “The rich rule over the poor, and the borrower is servant to the lender.” (Proverbs 22:7) Buying a home should not be your only goal, but rather you should be buying a home that you can comfortably maintain while living in it.

One good strategy to determine if you will be able to purchase your home before you buy it is to purchase an “imaginary house.” Calculate the amount of money you think you will be able to afford and then immediately open a savings account. With your “house fund” put a down payment into your new account that will come as close to 20 percent as you can afford. Each month after you have made the down payment put the calculated mortgage payment for your new imaginary home in the account. Without fail, every month make mortgage payments into your savings account for either six months, or until you have the 20 percent down payment that you will need for your imaginary home. If you find that you are able to make these payments, and still able to live comfortably without over-extending your budget, then you are on your way to having that new house.

Many people have discussed the possibilities of paying off your mortgage early. I have always been a huge fan of early mortgage payments. However, you shouldn’t start paying off your mortgage until you have established an adequate emergency fund that provides financial liquidity in case of unexpected circumstances. There are a number of pros and cons relative to paying off a mortgage early. Once you have purchased your home and made a decision to investigate an early pay-off, check with a financial adviser who will evaluate your personal circumstances and advise you appropriately.

I would love to have more in America come to realize the dream of owning their own home. To come home to something that we own is truly a magical feeling. However, we need to be diligent enough to do our own research and not leave our financial futures in the hands of others. Make sure to personally cross every “T” and dot every “I.” Do not be afraid to invest in a competent financial advisor to assist you in this tedious process. A principle of wealth is to be willing to invest in those professionals whose intellectual capital will enhance the quality of our lives.

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