Is now a good time to buy or should they wait for better times?
Economic Uncertainty Scares Potential Homebuyers
Bad Economy Scares Potential Homebuyers
My husband and I have been house hunting for the last few months. We have our three-year-old doublewide manufactured home paid for but do not own our land. We have no car notes or anything. We spent the last several years getting our credit in good shape in order to buy.
With the market in our area coming down in price, we are now able to get into a home on our limited income. However, with all that is going on with the stock market and economy, I am now scared to have a house note. Should we hold off or keep looking? The place that we are living at right now is not the best situation without going into details. While we want to own a home, it is more that we want to be in a less stressful environment.
I know that nobody can tell me what to do or what the future will hold, but I am up for suggestions from people who believe in living a frugal life.
Emotional Stress vs. Potential Financial Stress
You basically had a house note of sorts when you bought your mobile home. Just consider this possible future note as upgrading to a better home in a market that is rife with great deals. Feeling insecure about where you live creates an emotional strain that eats into your energy. If you buy prudently, you can relax when you get to your "new" home. You could wait another two years for the real estate market to continue to drop, but consider how much a home price might drop in comparison to your emotional energy being sabotaged in your current situation. Which one is worth more to you? Only you can make that decision.
Rhonda in Denver, CO
Move Current Home
If I was in your situation, I would look for a small lot of land that would be affordable, would allow the manufactured home to be placed on it, and where you might eventually enjoy building. If you own your own land, even half of an acre will give you lots of space, room for privacy, and even room to grow a lot of your own food. A lot could be purchased for a whole lot less than a house. Even considering the costs of moving your home, it should be a lot cheaper than buying another house and having a huge mortgage hanging over your head for years.
Don't Let the Home Own You
I would say mrs_q is ready to buy a home if she and mr_q have:
- three to six months' living expenses in the bank (including the proposed monthly mortgage payments)
- at least 20% of the contract price of the home in cash for a down payment
- at least 5% of the market value of the home in the bank for unexpected repairs (not for furnishings)
- all the fees needed for a home inspection, termite inspection, attorney's fees, etc. in the bank (a good realtor will provide a detailed list of the costs in your area)
- the mortgage payment will be 25% or less of their take-home pay.
Having all those items in order will make their home purchase a happy, enjoyable one instead of a stressful one. If they aren't there yet, their already frugal lifestyle will allow them to continue to save and be ready to own a home instead of the home owning them.
Jennifer in Emerald Isle, North Carolina
It sounds like you are good at handling your money, live within your means, and have a sound, realistic goal of owning your own home. Now is a good time to buy because home prices are lower, and with your sound credit, you should be able to get a decent loan. I recommend three things. First, buy something you can afford, not something your real estate agent, loan company, or bank thinks you can afford. Second, a fixed interest rate loan is a requirement. Most of the trouble you hear about now on the news is with home loans that have a variable interest rate, balloon payments, or are interest-only loans. Avoid these like the plague. Third, buy something small. A small house is easier to clean, easy to heat and cool, and is can not be filled with expensive clutter. We have a family of four and live 1,000 square feet and love it.
What Can You Buy on One Income?
Congratulations on paying off your manufactured home so early. In my opinion, this is an excellent time for a buyer to get into the market if you don't have another house to sell. If you are dependent on selling your home to move, it's a little tougher. Rates are low and home prices are (hopefully) bottoming out.
- As a home buyer right now, you have the luxury of time. Don't rush into a house until you find the house for you.
- Make sure you don't buy a bigger, more expensive house than you can afford on one income. Given your frugal ways, you are unlikely to buy more than you can afford, but imagine if you or your husband were unemployed.
- Make sure you have enough income in savings to cover your house payments and other expenses for a few months. Take this opportunity as you look for a house to really build up that savings account by pretending you are paying a mortgage, but put it all into savings for a few months.
- Lastly, if the situation in your neighborhood is truly unbearable or dangerous, move sooner rather than later. You can't put a price on your safety or sanity. It's rarely a bad time to buy a house, and you can't predict what may happen in the future.
Prices May Go Lower
Next year (2009), thousands of people with option ARMs are scheduled to reset higher. This means that many people will not be able to afford their mortgage payment and will walk away. The market will be flooded with homes. This will drive the price of homes much lower. 2010 could be even worse. I would wait as I expect prices to take a cut from where they are currently.
Financial Security in Coming Years
From the sounds of your post, you are living in a manufactured home park where you rent your space, but own your home. Manufactured homes depreciate in value the same way vehicles do. This means what you paid $30,000 for ten years ago may only be worth $20,000 today. A stick-built home will generally appreciate in value, meaning as the years progress, the house (as well as land) value goes up. The longer you own it the better it gets!
Scary but true is the fact that your property manager can decide to sell the manufactured home park to a big developer for millions (like has been happening here in Oregon the past few years) and you will suddenly have to move. Unless you want to spend thousands to move your home to a piece of property, you'll have to sell the house to someone else (who is willing to move it since they can't stay in the sold park either!) I know quite a few retired people who were living on fixed incomes who had to walk away from their homes and get no monetary compensation for them when the park sold and they had to vacate and hadn't been able to sell or finance the move of their homes.
My advice is if you can afford to buy a house, and you have good job security, then by all means buy one! Homeownership can provide great financial security through the years as long as you choose your home and location wisely. There is nothing better than 40 years down the road being able to say, "Back in 1972, I bought this 1600 square foot home on 2.5 acres for $32,000. Boy, I sure thought that was a lot of money then, but I just sold it for $400,000!" Talk about financial security, knowing that you've earned that sort of dividend just through owning your own home.
Make Sure Income Is Stable
If your limited income is not from a stable source (federal-derived, from bonds, pensions, or salary), then I would say to hold off. You might lose your job or income source in the coming months, and then you, too, will be one of the unfortunate foreclosure victims. You already have a home that's paid for, and why would you put that security in jeopardy right now? Wait until the crisis is past or until you know your income is secure, then go house shopping. Prices are only going to go lower from here anyway.
This Old Housewife
Take the Next Step
- If you haven't looked for a lower mortgage rate in the past year you could be wasting money each month. Use our simple tool that compares different lenders to see what your monthly mortgage payment could be. It's private, only takes a minute and could show you how to save thousands!
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