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Growing Money: Home Ownership Risks & Rewards
June 19th, 2008 by Katie McCaskey

Today we briefly explore why owning a home is a cornerstone to a strong financial future and the associated risks.

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How You Make Money Owning a Home:

  • Increase in market value (resell price) of home
  • Tax deductions on your mortgage courtesy Uncle Sam

    • Plus, there are all the investment intangibles that are priceless: a place to live comfortably and call your own.

    Home ownership risks:

  • Market fluctuation – price pattern changes in your area
  • Political changes – economic or political changes that impact housing (for example, the state decides to build a freeway through your backyard – likely, your house value will drop)
  • Interest rates – As we’ve seen recently this is particularly risky if you choose an adjustable rate mortgage (making the home too expensive for you to afford)

    • How much can you afford to buy?

    This table courtesy of one of my favorite finance books, “Left-Brain Finances for Right-Brain People” by Paula Ann Monroe. Here’s the chart she lays out:

    Mortgage Affordability

    1. Gross Monthly Income = $ [fill in your number here]
    2. Affordable Monthly Payment = $ [Line 1 x .28]
    3. Total of All Monthly Debt = [Line 1 x .36]

    Line 2 tells you how much mortgage you could comfortably carry. Line 3 tells you your spending limit. This is the traditional 28/36 ratio used before the crazy mortgage calculations came to market.

    Home ownership impacts a community greatly.

    Here’s an article this week on this topic from CNN: “Is America’s suburban dream collapsing into nightmare?”.

    Story Highlights

  • Subprime crisis transforms American suburbs to wastelands of crime, poverty
  • Survey finds 40 percent of homes in certain cities want walkable communities
  • Arthur C. Nelson projects surplus of 22 million large-lot homes by 2025
  • Experts project low-income families will be pushed out to suburban fringe

    • The current mortgage crisis and escalating rates in general are cause for attention if not concern. Owning a home impacts a community as well as your individual financial future.

    No matter where you are in the home ownership process there are people here at Geezeo who are like you. Find them in any of our home or real estate groups. Also, you can find articles about home ownership and real estate on our blog.

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    This entry was posted on Thursday, June 19th, 2008 at 10:23 am and is filed under Social/Environmental. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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