This weekend my wife and I had the pleasure of visiting with some friends (I'll call them R & L) that live down in the Olympia area. I was somewhat uneasy going into it, because they recently purchased a home, and R also occasionally reads this blog, so they know where I stand on the wisdom of such a decision at this particular point in time. As we turned into the brand new development onto GPS-uncharted roads, I became even more uneasy, imagining huge price tags for sardine-can houses and construction that isn't built to last.
As we got the grand tour of their (thankfully well-built) new digs, R filled me in on the lengthy process they went through to get into their new home. The more I found out about their purchase, the more relieved I was. Most importantly, they put 20% down. Also, they actually locked in the purchase in late 2004 at a considerably lower price than current neighboring units are being sold for (but they didn't have to start paying the mortgage until 2006). Furthermore, though it doesn't have to do with financing, another smart move was that they got a lot on the edge of the development that backs a protected "green belt," so they have a decent sized back yard, bordered by a layer of trees, a creek, and a surprisingly natural looking retention pond—all safe from future development. While I still think that renting is a better choice right now, R & L did everything right in their purchase, and will be secure even if a serious housing downturn takes place.
We are friends with another couple, J & J, who bought recently, and they too took the necessary steps to protect themselves. You see, most of my friends have this thing that has evaded the majority of the population when it comes to housing in the last five years... it's called common sense. Since common sense seems to be such a rare quality when people consider housing these days, I thought I would summarize the important steps that R & L and J & J took to ensure ongoing financial stability in their respective home purchases. Again, I highly recommend you rent for the time being, but if you simply must buy a home, here are the steps to take to protect yourself:
- Put 20% down & get a fixed-rate loan.
- Set monthly payments at no more than 75% of what you can comfortably afford to spend on housing right now.
- Choose a home that you would be happy living in for 10 years minimum.
If you find that you can't do each of the things on the above list, then just don't buy right now. It's that simple.