Living and Owning the American Dream

America is the land of the free and the home of the brave.  It is the land of opportunity and despite our issues (political, racial, and economical) it is still, in my opinion, the best place in the world to live.  And apparently, I am not the only one that believes this, because thousands and thousands of people try to come to America from all over the world to get a piece of the American dream.  And for many, that dream includes the ownership of their own home (spouse, white picket fence, and 2.2 kids sold separately).

Home ownership is a possibility that most Americans are familiar with and many are in the process of obtaining.  It is a huge accomplishment, and according to the Census Bureau, 64% of Americans own or are purchasing a home.  It is something to be excited about, and for most people, their home will be their biggest financial asset when they retire.  But home ownership can be a curse if you are not prepared properly.  So here are some tips on proper planning when it comes to purchasing a home.

1. Eliminate as much debt as you can.  Lose the car notes, credit cards, department store cards.  Get rid of things you make payments for.  These payments are wasting your money, stealing your income, robbing your ability to save, and lowering your ability to make a house payment.  The more money you have, the more house you can afford.

2. Save as much money as possible for a down payment.  The more money you have the better.  If you save up to put 20% down on a home you wish to buy, you can completely avoid Private Mortgage Insurance (PMI) altogether.  PMI is a fee you pay the bank monthly and they use it to foreclose on you if you stop paying the mortgage.  Essentially, it is you funding your own eviction (how crazy is that!!!). And the higher the PMI, the less house you can afford.  I know there are a lot of “creative” programs out there and several of these programs allow low down payments (some as low 3%) but I would warn you about those.  Just remember all the homes lost in 2008 due to “creative financing”.  Let’s not repeat the same mistakes and just do the hard (but simple) thing and save the money.  You can do it, but it will take effort.  Cash is still king.  It is better to have the cash to avoid PMI.

3. Do not let your eyes be bigger than your wallet.  Your cash flow will determine how much house you can afford.  Although paying cash is better, because buying a home is such a large investment, most people will get a mortgage.  For the sake of security, a good rule of thumb is a mortgage payment with all the fees (taxes and interest) should not exceed more than 25% of your take home pay (not your gross).  Here’s the tricky thing, mortgage companies will lend you more money, but the more money you borrow, the less money you have to build wealth.

4. A 15-year mortgage is the way to go.  I know you can afford a bigger house with a 30-year mortgage, but you are guaranteed to be in debt for an extra 15 years.  And you pay hundreds of thousands of dollars more in interest of the life of the loan.  That is tens of thousands of your dollars going to make the banks rich that could be better spent making you wealthy.

If there is one investment every wealth person has, it is real estate.  Why?  The answer is simple.  God is not making any more land.  He already made all the land He is going to make, and He did a good job (if He may say so Himself).  So real estate is a finite resource and it usually gains value over time (that is what makes it a great investment).  It is another example of God providing the opportunity for us to gain wealth and we do ourselves a disservice if we neglect His provisions.  Get your finances in order and start taking these steps to owning your own home.  Go get what God has for you.