Looking to buy a house and a car

Oran A. Hall, Contributor

It is with great pleasure that I take this opportunity to write to you with regard to my current financial status. I am 24 years of age and currently looking to buy a house and a car. Please advise me on the way to go correctly and logically.

- C. Holness

FINANCIAL ADVISER: It is a pity that you have not told me about your current financial status as that would put me in a much better position to give you the direction you are seeking.  Nonetheless, I will say a few general things which I hope you will find helpful.

It is becoming quite clear to me that there has been quite a shift in the priorities that people set themselves. Home ownership, for example, is becoming a short-term goal for many young persons.

Considering the rate at which the price of houses is increasing, it is quite understandable. Many would also try to justify buying a car at a young age by referring to the state of public transportation. But let us see if these goals are attainable.

Even considering the facilities of the National Housing Trust, which have been helping more persons to realise their dream of owning their own home, purchasing a home requires a considerable outlay of funds.

The deposit is generally between 10 per cent and 15 per cent of the purchase price. Then, there are legal fees and fees payable to the Government. Combined, these can be expected to amount to at least 10 per cent of the purchase price.

Qualify for a mortgage

As most people tend to borrow a substantial portion of the funds used to purchase their home, monthly mortgage payments must be made. The term varies, but 25 years is not uncommon. To qualify for a mortgage, you would need to satisfy the mortgage provider that your credit rating is good and that you can afford to make the monthly payments.

The mortgage provider will want to know your income to determine this. There is also the cost of insurance. You will have no choice in the matter if you are using borrowed money, but it is necessary even if you are able to make the purchase with your own funds.

A house is too important an asset to expose to hazards such as fire and flood.

A car is good for convenience. Cars cost a pretty penny too and are costing more as our dollar sinks lower. Many persons must use borrowed funds to make such a purchase. But, unlike a house, a car is a wasting asset. Its value depreciates with time and it costs a lot to maintain and insure. Here again, there are many expenses to meet after the purchase.

If you are able to make any of these purchases without having to borrow, consider yourself a fortunate 24-year-old. If you are not, what is the level of your income? What is the level of your savings?

Do you have enough to make the deposit on either or both? Can you make the monthly payments? If you are able to do all of the above, how will the acquisition of one or both affect your ability to finance your daily needs?

One very positive thing about buying a house, apart from the fact that its value appreciates over time, is that it generally gets easier to pay the mortgage over time as income increases.

In real terms, too, you are better off as the payments you make over time have less and less value due to the effects of inflation.

That you have said that you are looking to buy the house and car suggests that you have at least been putting things in place to realise those goals.

Have you made a budget taking care to include all of your income and all of your current expenses? Have you made another budget taking into consideration all of the expenses likely to come with the purchase of house and car?

You must have a very clear picture of your current and projected financial situation before proceeding any further with your plans. If you find that you are not able to carry out your wishes now, do not get discouraged.

See how you can increase your income and your savings and how you can cut your expenses.

Aim to realise one goal at a time, and recognise that you need not start off owning what you would consider to be your ideal home or motor car.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers free counsel and advice on personal financial planning.finviser.jm@gmail.com