Scenario: To buy or not to buy?
Brandon and Tracy are trying to decide whether and when to buy a home. Which choice do you think is best?
Brandon and Tracy both have demanding jobs and live in a beautiful $1,200 a month apartment. They’re considering buying their first home and have found two they like. Each costs $200,000; the monthly mortgage payment will be $1,298. The house they prefer needs a lot of repairs. To buy either, they’ll need most of their savings for the down payment and need to cut back on a number of things in order to pay the new monthly expenses.
The consequences of your choice
See the consequences of this choice for Brandon and Tracy and hear what the coach has to say.
”We’re enjoying our apartment, but we don’t feel like we’re getting anywhere financially. Our friends who own homes are starting to build home equity and have tax advantages, but all that we have to show for our $1,200 a month is a cancelled check. We wish we’d been more flexible about giving up a few things and bought a home sooner.”
If their landlord raises their $1,200 rent by 2% a year, in 30 years they’ll be paying $2,828 a month. After 30 years, they’ll have paid more than $685,000 with no assets to show for it. If they’re willing and able to pay somewhat more for housing now, they could start building equity as homeowners.
The consequences of your choice
See the consequences of this choice for Brandon and Tracy and hear what the coach has to say.
“For us, this was the right choice at the right time. Even though this isn’t our dream home, it’s great start to building home equity, getting tax advantages, and putting down roots. We’re managing our money carefully to pay all the new expenses and upkeep of the house. And we’re so glad we didn’t buy the other house! We liked it, but we wouldn’t have had the time or money to deal with all those repairs.”
Good choice! Based on a 3% average annual increase in value, Brandon and Tracy’s $200,000 home will be worth $485,000 in 30 years (however, the average U.S. homeowner stays in a home about seven years). Plus, as homeowners, they’ll generally be able to save money each year on taxes.
The consequences of your choice
See the consequences of this choice for Brandon and Tracy and hear what the coach has to say.
“We’re glad to be homeowners, but living through the remodeling is a hassle. We’re both so busy at work that we have to hire contractors for many of the repairs. That costs a lot, especially on top of all of our other new home expenses. On the other hand, we’re in the location we want and the house will look great when it’s done. Overall, we think our investment in this fixer-upper will be worthwhile.”
This wasn’t the ideal short-term choice but could work out long-term. They should have considered the total picture of their new monthly expenses. They’ll be short on funds until the remodel is done and their home could lose value if they can’t complete the necessary work.
Your first home may not be your dream home, but it can be a good first step. Consult your tax advisor regarding the deductibility of interest. Click the Next button to continue.