“Count the Cost” Of Becoming A First-Time Home Buyer (Part 2)

posted Sep 13, 2013, 9:15 AM by Willie T. Butler   [ updated Feb 4, 2014, 1:50 PM ]

In Part 1 of this subject, we listed four considerations for any Believer that is considering becoming a home buyer.  These are universal considerations, we believe, but they are especially important for Believers who, by virtue of their commitment to live for Jesus Christ, have a different standard to follow.

Part 2 attempts to provide further reasons to consider these tips, and it concludes by offering what we at the LifePlanning Institute consider are viable alternatives for the property virgin(s) or any home buying experience.  We hope you agree.

Consider Everything before Deciding

And, let us not overlook the significant impact that today’s college loans will have on these property virgins.  Young professional couples could be carrying between $150,000 - $300,000 in student loans, which is the equivalent of a conventional home loan and mortgage payment.  This means couples already debt-burdened will now incur the equivalent of two mortgages, which well exceeds the recommended budgeting percentage for housing (of no more than 50% of gross income).  Given this scenario, some couples are already obligated to pay $1,000 a month towards their student loans (for possibly 10+ years) and now will obligate themselves to another $1,500 - $2,300 a month (over 30 years) for a $300,000 mortgage loan. 

 Combined, these two monthly expenditures could be a potentially damaging duo of debt-to-income for a new home-buyer  especially if their annual income is not much higher than $50,000 annually or $4,250 a month.  Add to this the usual monthly expenses for transportation, utilities and the common service contracts for cell phones, Internet and other electronic communications and, of course, food purchases for the home and eating out, and you can have real financial challenges brewing.   And, even when couples say they will hold off having children for a few years, things have a way of changing when you least expect it!

 Living like the Jones-es

 Just think of it.  In many cases first-time home-buyers say they are looking for a home like their parents or friends own who may have done well in buying their own sizable home.  With that as their motivating goal, the only other consideration is simply how much [mortgage] they qualify for in the way of a home-buyers’ loan. 

 Fact is, at its peak, home-ownership in the U.S. once reached nearly 70%.  This means there was and will continue to be a segment of Americans that will never become homeowners, maybe never even pursue this lifestyle choice.  When the U.S. wanted to incent home ownership (after the Post-Depression era of 1935-1940) it founded the Federal Housing Authority (FHA), and, in 1938 Congress enacted legislation to create the Federal National Mortgage Association or Fannie Mae.  This helped mortgage-lenders gain further access to capital for mortgage loans.  Then in 1968, Ginnie Mae (Government National Mortgage Association)  was established, which provided the only mortgage-backed securities that are backed by the "full faith and credit" guaranty of the United States government.   

 And to increase the assurance of a viable secondary market for trading mortgage-backed securities,  the infamous Federal Home Loan Mortgage Association (FHLMA) known as Freddie Mac was formed (in 1970) as another government-sponsored enterprise (GSE).  However, in spite of these many government-sponsored agencies and private enterprises, America still entered into its worst  housing debacle ever, and in 2008, Fannie Mae and Freddie Mac went into conservatorship under another government intervention agency called the Federal Housing Financial Agency (FHFA).   Today our nation is still reeling from the effects of our housing crisis, and millions of American homeowners have been adversely and irreparably harmed by this mortgage-based financial crisis. 

More to the point, in the past Americans thought long and hard about homeownership which resulted in a growth rate rising from 25% to almost 70% in sixty-five years.  However, starter home prices back then ranged from $7,500 - $15,000 with interest rates around 2% for a 20-25 year mortgage.  Today, of course, the average home is appraised at $190,000 and the interest rate most people hold today can range from 7% to double-digits.

From a Kingdom Financial Planning perspective, a Christian should consider the following before this or any other major purchase:

 1.   Is This Purchase One That I Want Or Really Need?  And, If Needed, Why?

 2.   How Does This Purchase Fit In With The Accomplishment Of My “P” (Pursuit-of-Purpose)?

 3.   After Careful Review Of My Entire Financial Budge and my “P”, Can I Honestly Afford This Purchase?

 Viewed from this more comprehensive perspective, perhaps there are a few sensible ways to approach this major acquisition which can still accomplish the same goal.  For example: 

 1.  Set a Goal to Save For that First Home

     While this option is usually the least desirable when someone wants immediate gratification, it is often the best first option for all purchases.  This is what many other buyers did between the years 1945-1970.   If they could not save 100% of the home’s value, they set aside at least 20-25% as a down-payment which prevented their additional expense for Property Mortgage Insurance (PMI). 

 2.  Buy a Smaller Home with Cash and Gradually Upgrade

     This does not result in getting that ultra-modern home with all the latest in silver or platinum appliances right away, but it does get you into your own home more quickly and securely.  And, during your ownership, set aside money for do-it-yourself upgrades that add significant value to your home.  That way, when you do list it for resale, it will appraise much higher, perhaps well above your purchase price. 

 3.  Ask Friends, Relatives and Colleagues Whether They Know of Homes for Sale

     Again, it may not result in getting you that dream home, but you might find      that a good and affordable home was only an inquiry away.  You may have a relative that is planning to move soon, or they may know no someone who is selling their property and prefer to sell to someone they know. 

 4.   Consider Unconventional Purchase and Payment Options

       By asking around you might discover a quick-sale option with much more favorable terms.  For example, a seller might even agree to a private sale with payment terms more suitable to your own financial benefit.  They may have an existing mortgage you can assume at a lower rate than you might qualify for today.  And, there is always the Rent-to-Own option that is becoming increasing popular among sellers who are interested in helping others afford a home.  Point is you will never know what options exist until you ask.

 5.   Buying Simply to “Flip” or Rent A Section

       While many of today’s reality shows make the art of buying and flipping homes seem easy, it is not.  More to the point, getting into this activity to make substantial profits is a strategy that is also a way of life.  That means unless you are called to be in the real estate industry, beware.  It is costly and time-consuming, so you must consider what the actual cost to you might be.  Choosing a home that will allow you to rent a section—such as the basement or an extra wing—can present its own unique challenges and activity.  So again, count the cost and related toll on your time and use of resources.


A Call for a Higher (More Purpose-Oriented) Standard of Living

 Remember, our lives were designed with purpose, and God wants to use us in many ways as instruments that bring Him honor and glory in the earth.  But to do so requires that we make ourselves available.  Buying a home may be part of that plan, and it certainly will make the buyer feel as if they accomplished something important.  So expect God’s favor on such an acquisition.  However, do not let this goal undermine your willingness to serve Him as He directs (Proverbs 19:22) nor compromise your ability to respond to His will for your life.

 In the end, by using one of these options you may avoid incurring high, long-term debt that could derail your efforts to make other more important purchases relating to your “P,” and that demonstrate poor overall stewardship of what God has entrusted to you.  In Part 3 we will discuss more Do’s and Don’ts.

 These are just some of our thoughts.  Do you have any you would like to share?  Please comment below and let us know your thoughts.