Beware of “Too Good to be True”
When I was 8 years old, my mom took me to see the movie The Money Pit with Tom Hanks and Shelley Long. I remember thinking at the time that it was one of the funniest movies I’d ever seen. Just recently, it was on HBO, and I was reminded about how funny it is, but I actually appreciated it from a Financially Blonde perspective. Walter and Anna were living in her ex-husband’s home and found themselves suddenly “homeless” when the ex returned home without notice. Walter and Anna were shocked and caught unaware about where to live next. They decided to look for a house, but on their budget they were limited in what they could afford. They ended up finding a true “gem” and made a rash decision to purchase the house as it seemed too good to be true. And of course it was.
Don’t make the same mistakes
The movie is an exaggeration of a situation; however, I see many people (myself included) make poor decisions around home ownership and find themselves in the money pit for a variety of reasons. Home buying has dramatically changed since the housing crisis of 2007/2008. There are a number of new banking regulations and many of the options that used to be available to home buyers are no longer available.
If you want to buy a home now, you need at least 20% of the home price as a down payment. In addition, you will not be able to borrow against this money until your home value is at least 79% higher than the cash you have in the house, as the lending standards do not allow for it. Then you will need cash for closing costs, which are frequently underestimated by your mortgage provider. Then you should have cash saved for your first 6 months of your mortgage payments. The bank will not require you to do this; however, I know that it is a Financially Blonde decision as you never know what can happen once you move into that home. In fact, if you are buying an older home, I would also advise that you have a “rainy day fund” ($5,000–$10,000) saved for when you discover some of the wear and tear that your home has faced that didn’t come up during the home inspection.
Buying a home is one of the largest financial decisions you will ever make, and given this, you should make sure that you give this decision the thought, time, and research that it needs before you make it. It is Financially Blonde to have a substantial amount of cash on hand before making this decision. If you do not, then keep saving until you have it. You may dream of that perfect home for your family, but if you can’t truly afford it, then you will cause your family more damage than good by moving to the home too soon.
Ask lots of questions and preferably not from people who have a financial interest in your decision (like your realtor, banker, and financial advisor.). The best sources I would recommend are people who have recently bought homes. Ask for their input. Or ask questions here on the blog, and we will get you what you need. Don’t use Walter and Anna as a model of what to do when buying a home.
Below is a clip of one of my favorite scenes from the movie. EVERY time I see this, I laugh as hard as Walter does over the tub. So funny!