Saturday, November 19, 2005

Don't Buy a House Now

Wait till Spring at the earliest to buy your house if you really have to make a purchase.


[No one knows for sure if we've reached the top of the real estate market, but a growing numbers of experts, like Bankrate's Senior Financial Analyst Greg McBride, are warning home buyers not to overextend themselves when looking for a new home.

"If you're buying a home now, you need to look at it from the standpoint of building that equity cushion. So if prices don't cooperate when it comes time to sell, you're not stuck owing money at the closing table."

McBride cautions one way to fall into a financial trap is with the popular interest-only loans - your money goes only to interest, not to principal. These loans enable buyers to pay a monthly mortgage they otherwise couldn't afford. But, what happens if the market falls?

Say you purchase a home for $600,000 dollars with a no down-payment, interest-only loan for the first 3 years and your mortgage is $2,500 a month -- after 3 years, you'll still owe $600,000, because you've paid only interest and no principal.

But, the loan now converts to a conventional loan and your monthly payment jumps to 41-26 dollars. To make matters worse, if the housing market drops and your home's value declines to $500,000, you would have lost $100,000 dollars in equity.]



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