The new rules for homeownership

Gone are the days when we'd buy homes just because we felt entitled to the American Dream. Back in the early to mid 2000s, not many gave a thought to whether they could afford the homes they were buying and whether they would be able to afford them should the worst case scenario occur. Consequently, many homeowners are still reeling from the economic downturn. Suffice it to say, the game has changed. There are more concrete factors to consider when deciding to buy a home.

Long-term vs. short-term investment

Homeownership is an investment, and you have to decide if you're in this for the short- or long-term gain.

What's your game plan? Are you planning on living in the home long term because you want to settle down with a new job and family there? Or are you there temporarily? If you're planning to settle there long term, then you want to get to know the neighborhood's history and details and determine if you can weather the course. Over the last few years many areas have seen an economic decline that led to homes being abandoned and neighborhoods becoming less desirable to potential homeowners.

If this will be a short-term investment, then you want to make sure that you're running the necessary numbers to project your profits and losses to the best of your ability. Usually, people who are interested in long-term plans for a home aren't so much concerned with profits and losses as they are about being able to enjoy their investment. Short-term investment folks tend to see this as a financial opportunity and, therefore, are less invested in the people and the neighborhood at large.

Job stability

Who has job stability these days? Not many. Given that they can be laid off at any time, 1099 and W2 workers are pretty much both at risk, especially in an at-will state. Questions to ask yourself about employment stability include these:

• What are the long-term projections for your position?
• Is your company dependent upon securing contracts to maintain your position?
• Do they have any cash-flow issues which might result in lay offs?

Overall, you have to make sure that your job is in a position to sustain your financial obligations. If you're unsure, start to consider multiple streams of income to create backup plans in the event your position is eliminated.

Affordability

Can you afford the home? This is a pretty obvious question, and the banks are on top of their game now to make sure that you can. Still, just because the bank says you can afford it, this doesn't mean that you should borrow to the limits of your approval. Remain conservative so that you can save more money instead of putting it all towards a larger home. You'll find this to be a smart move simply because it gives you more breathing room instead of forcing you to press the limits of your paycheck.

Clearly, the game is different with new rules for engagement around buying and being able to financially maintain a home. We're no longer entitled to a home because of the American Dream. We have to make sure that we can weather the mortgage and other obligations that come along with it.