Buying Your First House Should Be a Business Decision, Not an Emotional One

San Diego, CA. "For most individuals, buying their first home is one of the most important financial decisions they may ever participate in because it is likely the most expensive object the average consumer purchases and with the longest loan commitment," says the nonprofit Institute of Consumer Financial Education (ICFE), a San Diego based consumer organization. "Too many first time home buyers base their decisions on emotions, instead of financial reality, and cost is always the biggest shock of reality," according to the ICFE.

Planning your finances for the purchase and the big move means more than just figuring the mortgage payment into a spending-plan, a/k/a budget. Importantly, preparation for your first meeting with a real estate agent should include knowing what your financial needs are and this is done by determining exactly what you can afford each month. This is even true when renting an apartment, so take the time beforehand to figure this out.

Prepare mentally for that meeting with a real estate agent, by reminding yourself you are entering into a business decision and negotiation process. Falling 'in love' with the house you are looking at is bringing your emotions into the decision and emotions are the last thing you want to get involved. Typically people must be reminded, that as much as they may love a particular house, it isn't the only nice property available for sale. Once you are into the buying process, do not exceed what you figured out to be your maximum monthly payment and don't compromise financial needs just to buy it. To do otherwise, you may find you are unable to pay all the monthly expenses.

Keeping your business mind about you when buying a home requires you to approach the transaction, much like a wealthy person would, by being knowledgeable and cautious, in addition to separating your emotions from business transactions.

Other home buying strategies you can use are:

1) Hire a lawyer. Real estate agents are trained to sell homes, loan officers are trained to sell loans, lawyers are trained to practice law, and for a few hundred dollars you should be able to find a lawyer who will review your purchase contract and make certain it keeps your best interests in mind.

2) Hire your own inspectors. Most every real estate transaction
requires a basic inspection of the premises, often, by the lender to insure their interests are protected. These inspections are not always the most detailed. By hiring your own independent home inspector, you will ensure your interests are also protected. Hidden problems uncovered by your own inspector, such as toxic mold or a termite infestation, could save you thousands of dollars in repairs after the fact.

3) Consider different types of financing and loans. Many first time home buyers jump head first into a 30 year, fixed rate of interest mortgage. This may be an emotional reaction by those buyers who fear that their house payment will go too high with an adjustable rate mortgage (ARM). Depending on interest rates, however, an ARM may just be the right decision, especially if you are only planning on keeping the house for five to seven years. Another advantage of an ARM, is that you usually don't need as much income to qualify as opposed to a 30 year, fixed rate loan. Additionally, if you can afford a higher payment, then consider a 15 or 20 year mortgage. The interest rate may be lower and in the long run, you will pay less for the home.

Check out first time home buyers programs, sponsored by the U.S. Department of Housing and Urban Development (HUD) Visit: www.hud.gov/buying/index.cfm. Most communities served by the nonprofit Consumer Credit Counseling Service (CCCS) have Homeowner Counseling and Education programs. Visit: www.nfcc.org or www.debtadvice.org. Another good resource is Freddie Mac, a corporation formed by Congress in 1970 to create funds to mortgage lenders in support of homeownership and rental housing. Visit: www.freddiemac.com

For more information on getting yourself financially ready to purchase your first home, visit the ICFE's Web site at www.icfe.info. For readers without Internet access, you may receive the same information by sending $1 and a self-addressed, 60 cent stamped envelope to: ICFE Spending Plans, PO Box 34070, San Diego, CA 92163-4070

©  Paul Richard, RFC and the Institute for Consumer Financial Education. All rights reserved.