Home Sweat Home
By now you are aware that the greatest financial crisis the world has seen in seventy years is due to housing issues. Those of you who are interested in such things can read opinions by the hour and determine who was at fault. The important thing for most of us is to understand what we should do about housing. Housing means shelter and shelter is one of our basic needs. It can be life saving during bad weather and comforting during bad times. It should keep wild animals out and keep our possessions in. Many people consider homelessness to be the very worst form of poverty because it represents almost complete vulnerability.
Some people came to think of home as a symbol of success and self-worth. They must live in a certain neighborhood or a certain type of home. These folks are paying for more than housing and will probably have financial challenges some day, if they don’t already. It is time to develop a 2010 perspective on housing that is more like the 1930 perspective. It must be based on affordability and risk avoidance.
There is, of course, a prescription for housing.
The Budget Doctor’s Prescription for Housing
- Determine your monthly take home pay and divide that amount by three. That is what you can spend on housing. If you take home $800 every two weeks, you can spend $578 a month ($800 times 26 paydays divided by 12 months). And 5% of that payment amount ($29) should be saved for home repairs if you own, or for a down payment if you rent. This is not the government’s standard or lenders’ standard; it is better.
- If you aren’t sure where you’ll be working in four years or if you don’t have 22% of the cost of a home saved, rent. Renters should spend less and save more.
- If you are going to stay put and have 20% for a down payment and 2% for other costs, buy a home. The tax code encourages it and you might see it increase in value. If it doesn’t, you paid for a place to live.
- When you are selecting a home, start with the cost, and then list the things that you want in order of importance. You won’t get everything so make sure the garage is more important than the deck.
- If you buy, stay put. It costs money to sell, money to buy and money to move. If you rent, keep checking for better deals.
- Take good care of your home, but don’t be overly proud of it or ashamed of it. It is just a place to live. If it burns down you will find another.
- Don’t confuse home buying with investing. It is good to have your home paid for when you retire but your home is not your retirement savings. You will still need a place to live and you cannot be sure that home values will be high when you need to sell. If you borrow equity for college bills or vacations, you will probably have to work longer to pay it off.
If you are one of the many people sweating out the housing crunch and suffering from it, promise yourself that you will talk with a housing counselor at a HUD certified agency and that you will keep this article for your next home buying adventure.
And remember, it is just a house.