I have been reading the content of my website recently and I feel many of the things I write are helpful to new or experienced owners or real estate and much of it is positive information about the real estate market and encouraging of others to buy a home or use home equity to refinance your mortgage to improve your financial situation.
While it is all my honest beliefs, and it is generally the number 1 tool for most people to create wealth, there is the other side of the story which I have seen at times over the past 3 years, and I feel today is a good time to address it. The question that many people should ask is “when is it the wrong time to buy a home?”
I consider what I do to help people, and I genuinely do what I can to that end, even if sometimes it means I do not arrange a mortgage for someone. It is not a pleasant for me to know that I arranged financing for someone who is now struggling with their mortgage. As a mortgage broker I am a professional and advisor in this area, it is one of the areas that I strongly feel I provide value to a client beyond providing the “best rate.”
Here is my opinion about where it may be best to wait on making that home purchase:
1) When you require private or subprime mortgage financing in order to finance the property. This is much more difficult than it used to be as many of the “subprime” mortgage lenders will only go to a maximum of 80% of the value of the property, but there are still options out there for subprime lending, and I have seen many people burned by it over the years.
I recently met someone who paid lender fees of over $20,000 at an interest rate of 8% in order to mortgage a home for just 3 years. It has been an extremely expensive period for them.
I also had a client foreclosed on due to having subprime mortgage financing (I didn’t arrange the mortgage for him). He did not look at the property as a home, but had an emotional attachment to it that wouldn’t allow him to let it go.
Which brings me to an important point about buying a home; do not get emotional about the idea of being a homeowner or fall “in love” with a property. It is an asset to you which you should use rational judgement to decide upon.
2) It is particularly not a good time to buy when you have credit challenges. This ties into situation number 1. If you have had a bad credit history, then it is often best to wait until you resolve that before deciding to buy, or you could be stuck with a subprime mortgage that is difficult to manage.
If you already own a home, then a mortgage refinance can possibly help fix this situation, provided the terms of the mortgage are reasonable. Generally I would not broker a mortgage for someone for more than 3 years in this situation if possible, as 3 years of good track record may be enough to obtain a prime rate mortgage again.
3) When the home you must have is beyond what you can afford. I had someone call me once who made $2400/month and wanted to buy a duplex in the Greater Vancouver Area. She wouldn’t be happy enough with a starter condo. It was difficult for her to grasp the reality that her mortgage payment would be more than her pre-tax income and that she didn’t even have the downpayment necessary for such a property.
It is important to be realistic in what you are looking for and what you can afford. If you get something less than ideal now that you can afford, you can always move up in the future when you are in a better situation.
One thing that most people would think should be on this list that I do not agree with is buying in a flat or down market. It is my belief that this is the BEST time to buy, or to upgrade your current home. Buy when prices are down and competition for properties is scarce. In a hot market, it is still even a good time to buy, particularly if you are buying for the long term. Short term “flippers” would need to be careful in this type of market as prices could turn. However, it may still be worth the risk depending on the circumstances.
In conclusion, while it is usually a good time to buy under ordinary circumstances, your own personal circumstances should be taken into account when making the ultimate decision of whether it is best for you at this current time or not. As a mortgage broker, it is my job to help give you the information you need to make that decision. Some people are actually convinced they have a poor credit score, when they are actually in a good situation. Others think despite having good credit and income, that since they don’t have a downpayment of 25% they shouldn’t buy. I can help you to determine what your situation is and give you options. Fill out the form below for a free consultation and let’s see how I can help you.