banktime.com

For the children of middle-class American parents, there’s no denying the fact that life is meant to follow a certain plan. Graduate high school with good grades and a diverse spate of extracurricular activities. Go to college. Make time to find a mate whose life goals suit your own. Get married. Buy a home, have children, live happily ever after. If you are rolling along in your mid-twenties, doing what you believe that you are “supposed” to, then it probably never crosses your mind to wonder if you are really making the decisions that will do you the most good in the future. For many young adults of this generation, buying a home probably wasn’t the wisest choice.

For those Americans who left school and joined the adult workforce around five years ago, the American Dream of home ownership actually turned out to be more like a nightmare. Young, first-time homebuyers were tripping lightly over the thresholds of their new abodes around 2006, happy as clams and ready to soak up all the glory of owning their own homes. Many of them were still exhilarated by the concept of bringing home a real paycheck for the first time, and didn’t take time to worry overmuch about the fact that their new mortgages were going to cost several hundred dollars more per month than they were paying to rent, or that the bank saw fit to approve them for loans wildly out of balance with their actual salaries. Those were optimistic days.

We all know the ending to these stories, of course. The real estate crash, and subsequent recession: home values plummeting, home sales grinding to a standstill, long lines of foreclosure notices up and down residential streets that had once been magnets for upwardly-mobile young families. Job losses. Despair. Crushed dreams. In the best of cases, these people were left paying high mortgages on houses that cannot possibly hope to regain their purchase value in the next two decades. In the worst cases, people lost their jobs, lost their homes, and their marriages crumbled under the stress. There’s a million sad stories out there, all much along the same lines.

Even for the most prudent twentysomethings, and those lucky enough to have a.) not lost their jobs, or b.) to have not bought into the housing market during the height of the real estate bubble, first-time homeownership can be really tough. People in this age bracket are likely to have a significant amount of debt, the highest of which are likely to be student loans with monthly payments as high as the mortgage. Many own at least one car, and in America the average college student graduates with a handful of credit cards. This all adds up. If you have kept a strong credit rating, the bank will very likely extend you a loan… but that doesn’t mean that you are able to pay your mortgage and still get anywhere with your existing debt. Living paycheck to paycheck is a dangerous game when you are responsible for the care and maintenance of your own residence. And if – God forbid – you should happen to lose a large portion of your income (as so many of us have nowadays) due to layoffs or pay decreases, you could be in big trouble. For the longest time when the economy was going south, there was a self-righteous common belief that the only people being foreclosed upon were those who had gotten greedy and bought homes that were far outside their means. We all know now that it’s simply not true – many foreclosure horror stories are those of people who worked hard, bought sensibly, and were simply pulverized by the crushing force of hard times and bad luck. Lots and lots of bad luck.

Experts say that young, first-time homebuyers tend to get overwhelmed by the difference between renting and owning a home. The market is shot right now, and rates are at historic lows. It’s very likely that you could obtain a mortgage for less than it costs you to rent – quite a bit less. What many people fail to take into account, however, is the hidden cost of home ownership. Utility bills will be higher if you have a larger place, which you very likely do. You’ll now be wholly responsible for the maintenance of your domicile, and that’s to say nothing of the price tag for repairs and renovations that you either want or need to make. You’ll need things to keep your home in good repair and working order: a lawn mower, a snow blower if you live up North, gardening implements, tools, et cetera. There’s no guarantee that your air conditioner or heater won’t drop dead within a week of your closing date, or that the roof will last longer than three years. These things tend to snowball on each other, too. Plus, you run the risk of losing money on your investment in either the long- or short-run. It can be awfully seductive to buy a house and start building equity, and there’s every chance that people buying their first homes today might be able to do that. Three short years ago, however, people nurturing this dream were unknowingly walking into homes that would be shedding double digits of value by the month. Nothing is to be taken for granted.

Young people might think that they are making a savvy choice when they purchase a so-called “starter” home, say a two bedroom bungalow with eight hundred fifty square feet and a back yard the size of a pocket handkerchief. It’s low-maintenance, it’s affordable, and you got a great deal! But guess what: the old song about love, then marriage, then baby carriages generally holds true. It can be a very short period of time between when young buyers move into a home, and when they are looking for a bigger place to accommodate their growing family. Things like negative equity and a stalled housing market can happen at any time, however, and you could end up stuck in your tiny home – and that’s the best case scenario! In the worst case scenario, you could end up like 2007’s homebuyers and faced with the likelihood of losing tens of thousands of dollars if you go ahead and try to sell.

Experts advise young people to keep their dreams of home ownership alive, but to take it slow and be patient. It’s important to thoroughly evaluate your financial situation and what you want out of life. What’s like to happen in your immediate future: is your job stable, or do you have your eye on moving up the career ladder and potentially needing to move? How many kids would you and your partner like to have? What is your overall financial situation like? Do you have credit card debt? Student loans? And, on the other hand, do you have a healthy savings fun? Have you started your retirement savings? If you can’t answer these questions in the right way, it’s not going to hurt you to rent for a few more years while you save up and get yourself situated more ideally. The house will still be available. And you can only become surer of yourself. Experts say that people get too hung up on the old belief that owning is automatically better than renting. That’s not true, however: your rent includes freedom from maintenance fees, surprise repairs, or crashing equity. And, if your job should fall prey to the lingering recession, you might still be out a place to live – but you won’t have a foreclosure on your record. My advice is to take your time. In your twenties, your life is still a story being written. Enjoy it, and take the time to make the right decisions. You have it.