Purchasing a home is not only one of the most important decisions but it is also one of the biggest decisions a person can make in their life. There are so many factors that come into play when making that final decision. Before you can make a final decision on which home to purchase you have to make the decision to buy a home. My husband and I have accepted the challenge of making the final decision on whether to purchase a home or continue renting. First we sat down and made a list of all the things we needed to consider before jumping into purchasing a home. The next step we took was to make a list of pros and cons for our current renting situation and for making the choice to purchase a home. From there meeting with a relator and then a mortgage consultant would be our next step. We would like to share our process with you and why we made the decision we did.
One of the first things to consider, other than your budget, is to look at Mankiw’s Economic Principles. Within the ten principles you will find how relating those to your purchase can help you in your decision. We chose to focus on the first and second principle because I felt those were the best principles that settled in on what we needed to put into perspective when making the decision. The first principle discusses trade- offs. For example, my family and I currently live in an apartment so if something breaks all we have to do is make a call to the landlord and it is fixed for free but if we were to purchase a house all repairs would be on our dime. Is that trade off worth paying for something that would actually be ours? Another trade off to owning our home would be the extra expenses. Currently we just pay rent plus an electric bill. If we were to decide to purchase our own home we would have to pay for all the utilities. So while our mortgage might be less we have to take into consideration paying all of the utilities along with home insurance. Next we need to figure out if paying for everything still fits into our budget otherwise we would have to consider continuing to rent. The second principle of Mankiw’s Economic Principle is figuring the cost of what you want by what you are willing to give up in order to have what you want. While looking for a new home I have to consider the location of not only my job but my husband’s job as well. This is something that is important to both of us. We want a house close to our jobs so that we are not spending the extra money in gas. So for us our house is not worth having if we had to move farther away from our jobs. Another important factor for us since we have children would be living in a good school district. We do not want to live in area where the school system does not fare well even if it meant a bigger house for less money. There are plenty of homes that are cheaper because the school system is not as great as others. For us it would be worth having a smaller home as long we had the better school district and less of travel to work.
Marginal benefits and marginal cost are other factors to heavily consider when purchasing a home. According to Investopedia marginal benefit is defined as the additional satisfaction that a person receives from consuming an additional unit of a good or service. In order for benefit to occur a person has to be willing to pay for the product. In the housing market this would occur if there is an abundant amount of houses people can negotiate the pricing of a house. If there are less houses in an area than the chance of negotiating becomes less. For me, I would be looking into an area that has several houses for sale because than I have a better chance of finding a better that I can pay a little less for since there is a good amount of home owners trying to sell their house. As for marginal cost, Investopedia defines that as the change in total cost that comes from making or producing one additional item. The…