April 23, 2013 by Will Ray
Last night in Financial Peace University we covered the vitally important subject of Real Estate & Mortgages.
If you’ve been alive with your eyes open the last five years, you know just how big of a deal this topic is. Unwise decisions by buyers and lenders led to the real estate “bubble” (artificially high prices), then a few things slowed in the economy and everyone got caught with their pants down. The mortgage crisis led the way into to the recession and sluggish economy we’ve experienced the last five years.
I appreciate Dave Ramsey’s take on it, because not only is he a financial guru, he has TONS of real estate experience. He made his first million – and went bankrupt – buying and selling real estate, so he knows his way around this stuff. He also leverages the banking experience of Chris Hogan to help listeners understand the various mortgage options out there.
A few big takeaways from this lesson:
Don’t buy a house until you’re financially ready.
Dave really encourages everyone to be out of debt and have an emergency fund, plus a down payment before purchasing. This keeps your house, which should be a blessing to you, from becoming a curse.
Think about it. If you’re $30,000 in debt between your car, credit cards, and student loans, you don’t have any real emergency fund, and you move into a home, YOU are taking a huge risk. When you rent and something breaks, you call someone and they fix it for free. They insure the building and pay taxes on it. But when you own, YOU pony up the cash to fix the leaky roof, the water heater, the HVAC system – any of which could cost you thousands of dollars! If you enter into a home without being prepared, you’re asking for major financial problems.
The bottom line is this: Just because you pay however much in rent, doesn’t automatically mean you can afford that big of a house payment. Owning a home is much, much more expensive than the mortgage payment.
Our class last night identified some great stages in life to rent as well:
– When moving to a new area
– During a major life transition or crisis – death of spouse or close relative, divorce, new marriage, etc.
– If your job moves you around the country a lot – military or some sales or management jobs with large corporations
A quick note about mortgages: Please get a 15-year fixed-rate. You might be able to afford more home if you get a 30-year, but we’ve got to remember to HATE debt, and do everything we can to get out of it. I spoke to a couple this weekend who looked at the options between a 15-year and 30-year mortgage, and the difference in interest over the life of the loan was literally $100,000. It costs you an extra $100,000 for no benefits other than the privilege of being in debt an extra 15 years.
This “American Dream” of home ownership has really become a nightmare for thousands of people all across the country, but if you enter into it carefully, conservatively, and with wisdom you can keep it from becoming one.
Question: What’s your home like now? Do you plan to stay there long? Has it been a blessing to you?