Week Nine Final Project
A New House - Decision
January 13th, 2013
Purchasing a home is life changing and a big decision. This is a decision I am currently being faced with at the moment. I have been living in a one bedroom apartment for the last two years, but now it is time for a change. My girlfriend and I are expecting our baby to arrive this June. This of course will require a bigger space and moving into a bigger apartment is not an option. A lot of people believe buying a home is finding the home you fall in love with, have a good credit score, and save money to put down on the house. In reality a lot more needs to be considered ...view middle of the document...
Living in my apartment will not help me gain equity, but owning a home will build equity over time. If something is broke in my apartment the maintenance team comes in and fix it. However, if something goes wrong I will have to fix it on my own or pay for someone to fix it. Purchasing the home is a better decision because I would lose some perks to living in an apartment but it will benefit in the long run. I would have more space, building equity, and have tax deductions. With me choosing to have a fixed rate I would not have to worry about a change in monthly payments for the next 15 or 30 years, depending on the loan length.
Principle three rational people think at the margin is another important thought when purchasing a home. In my opinion a lot of people missed them step when purchasing homes over the last five to ten years. So many homes have been foreclosed because people were not being rational. Banks were approving loans and people were not analyzing the full picture. My fiancée and I went to look at a new home and were told with our salary we could get a home that cost $2,400 a month in mortgage. The home we considered had everything we wanted and would be $1,700 a month. We had to come home after being “wowed” by the salesman and be realistic. We loved the house but thought is this something we really need. We decided to become more rational with this decision. We decided to lower our price range from$200,000 $230,000 to $130,000 - $190,000. It is more important for us to find a house with the amount of bedrooms and bathrooms we need. We can remodel at a later date to have the changes we want. This is a applying marginal change because we are doing small increments adjusting to a plan. First mission is to get our house at the desired price and then make changes over a period of time.
Principle four people respond to incentives is my final principle. When I started talking to a few home owners the first thing they discussed was the tax deduction or credit they receive from owning a home. The next is the low interest rates because of how low they are right now. It is a buyer’s market and now is the time to buy a home. Once the economy starts to stabilize the Federal Reserve will raise the cost of borrowing money to the banks, which will result in higher interest rates for consumers. New home developers are offering incentives to home buyers so that cannot be beat.
Analyzing marginal cost is important when purchasing a home. Most of us do not have money to buy a home cash, so most of us will apply for a loan. The banks will loan the money but for a fee. This fee is known as the interest rate and today’s rates are at an all time low because of the economy. When applying for a loan we have options such has a down payment. If we put zero percent down, we are borrowing 100% at the full interest rate, which makes a higher monthly payment. If you have 10% to put down you will only borrow 90% to purchase your home which lowers the monthly...