Family Finance

by Crown Financial Ministries

House purchase

Is it financially wiser to buy a home that requires renovation and or maintenance, or one that is move-in ready? Well, that depends, because obviously the answer won't be the same for all situations.

For example, if you are handy with a hammer and super good with a saw, then congratulations, you may be a candidate for buying a home that needs some love and care.

However, if you think a "bench mark" is what happens when your furniture sits too long on the rug, or that "drywall" simply means there are no leaks in the roof, then maybe you'd better look at a home that's move-in ready.

Generally speaking, those interested in fixing their home, are willing to invest some sweat equity in order to make a profit and then move on. If that doesn't sound attractive to you, chances are that you're the sort of person who would rather just move into a reasonably ready house.

But, wait a minute. It could be that you're not financially prepared to do either one. You see, your first decision probably should be whether to rent or try to buy a house. Most people see no point in paying rent when you could be accumulating equity. However, if you were to "over-buy" a house -- even one needing repair -- your debts might accumulate faster than you could accumulate equity.

It all hinges on your budget. If you have the money to make a down payment and you can afford the monthly payments, it's probably wiser to purchase.

The No. 1 cause of financial difficulty, especially for young couples, is purchasing a home more expensive than they can afford. And that kind of financial stress provides the fuel that can result in broken relationships.

So the first question is, "Do you have a down payment?" The second one is, "Can you afford the monthly payment with income from only one family member?" Those two requirements are very important, because many people buy or build a house and then try to stretch their income to fit the house, rather than starting with their income and finding a house that fits it.

And remember this: An unexpected illness or pregnancy might make it impossible for one of the wage earners to work. In that case, how does that high monthly mortgage get paid?

You should consider a number of suggestions when buying a house, whether it's move-in ready or a fixer-upper house:

  • Be realistic and start small.
  • Location, location, location -- it's the real estate creed.
  • Be willing to keep your first house five or six years and put lots of love and labour into it and you'll build equity.
  • If you are trading up, buy a house that's no larger than you need with payments you can afford.
  • Free up some of your surplus funds each month to repay the mortgage principal in order to pay the mortgage off as quickly as possible. However, if you're thinking of paying off your mortgage early, be careful that you don't sacrifice everything to do so. There may be other things that are higher priorities for your family than paying off a mortgage early. Only you and your spouse can make this decision together, and you should use no more than a percentage (not all) of your surplus funds if you do decide to pay off your home early.

You would be wise to use no more than 40 percent of your net spendable (after tax) income on housing -- this includes mortgage payments, taxes, insurance, utilities, and telephone bill, and maintenance on the house.

When housing expenses reach 45 to 50 percent or more of your net spendable income, the likelihood is that you're a candidate for serious financial difficulty.

Couples who purchase homes far more expensive than they can afford might not only lose the homes but also have their marriages threatened by the resulting stress. Many of us could easily downsize our housing situation and still have very nice, comfortable, affordable homes.

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