Buyers, don't forget 5-year rule

Q: My friends and family are all pressuring me to buy a home. I'm totally obsessed with HGTV, and love to go to open houses in my neighborhood, just to look. I would love to own my own home, and can well afford to. My only concern is the commitment. It seems like such a big, long monetary commitment, and sometimes I'm not even sure if I want to stay in this area much longer or explore some more. I do live in a high-priced area, and sometimes I worry that if I do decided to stay here, and I don't buy in the next year or so, I might end up priced out of ever buying in this area.

A: If you read this column regularly, you know by now that I am usually bullish on buying. For most folks, that can afford to buy, and want to buy -- buying strategically is usually a good thing to do. However, you are very wise to take seriously the deep level of commitment involved in homeownership, especially in this market.

Mindset Management

Despite the volatility in home values, it is a great time to buy, so long as you are planning to hold the property for the long term -- five years is about the shortest time you would want to be planning to own the home, although this is somewhat geographically specific. If the idea of owning the property for a five-year time frame is just more commitment than you are interested in making, then buying may not make sense for you. Note that the commitment you would be making would be a commitment to owning the property and fulfilling the financial obligations of a mortgage, property taxes and other ownership costs -- not necessarily living in the property, or even in the area.

In terms of the size of the monetary commitment involved, many first-time homebuyers overestimate the cash it takes to buy a home and what it costs to own a home -- especially since home prices have come down so much. The reality is that in many areas of the nation, when you adjust for the tax advantages of homeownership, you can now buy an entry-level home for the same amount you'd pay to rent on a comparable property. Also, the amount of "cash to close" currently required to buy a home is much less than most buyers assume. Many buyers are closing escrow with as little as 3.5 percent of the purchase price into the transaction, especially since sellers are often covering closing costs. Before you awfulize that buying a home will involve great costs over time, if you're truly interested in buying, you should obtain a reputable mortgage professional's estimate of how much you'd have to come up with to close, and what your costs of ownership would be like for the rest of the loan.

With all that said, if you are not really that interested in buying, and are writing because of the pressure you feel from your family and friends, don't do it. Period. Buying is, as you suspect, a major emotional and financial commitment, and you should not do it because someone else wants you to. Enough said.

Need-to-Knows

If you are interested in exploring the prospect of buying without the die-hard commitment, consider taking a lease-option on a home you think you might like to buy. In a lease-option or lease-purchase arrangement, you essentially rent the place but retain the option to purchase the home at any time for a certain number of years (two or three years is the norm). You might pay somewhat higher rent, but the landlord/seller agrees to place some portion of that rent in a savings account for you to use as your down-payment money if and when you decide to buy the place. ...CONTINUED

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