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Credit - Article 3.

A TIME TO BORROW - BUYING A HOME

Assuming that you are not in a position to pay cash for that cute little starter home you've had your eye on, you are going to have to borrow money in order to become a homeowner. And becoming a homeowner is one of the single most important things you can do and, in fact, NEED to do in order to become financially independent.

We in America are blessed to have the ready possibility of homeownership available to us - we still have "lots" of land available for development; the public policy of the land, as expressed in the tax code, heavily favors ownership (more on that below); and the credit needed by most of us in order to buy a home is readily available.

Why buy a home? Why not just rent?

Unless you have no interest in the tax saving opportunities available to those who buy, and unless you have no interest in the favorable investment aspects of home owning, then you should rent. If you are concerned about maintenance and yard work, then you may want to consider the relatively easier option of condominium living. Otherwise, buying is better than renting for several big reasons:

	1. It is the public policy of this nation to encourage the purchasing of one's residence. You can tell this by understanding the tax code, which is replete with encouragement to buy: mortgage interest is deductible; property taxes are deductible; and the increase in value of your home by the time you sell is generally not going to be subject to the same capital gains tax you will pay on the appreciation of other investments.
	2. Renters may think they are avoiding paying mortgage interest and property taxes on the place where they live - and they'd be dead wrong. Of course renters are paying these items - it's just that they're paying them to and FOR the landlord, and it is the landlord who benefits from the long-term increase in value of the property, not the renter.
	3. If necessary, you can use the equity in your house to help pay for junior's college education, or for other necessary expenses (such as medical bills). Renters cannot do this.
	4. You can use the increase in value - the appreciation - of your home to finance the purchase of the next home, the bigger home, the better-located home. Eventually, when it might be your time to retire, you can even sell your higher-priced home, move into a smaller, cheaper model, and use the "profit" to help finance your retirement.

Whether you are buying your first home, your second home or your retirement home, you should use credit to finance the deal. A long-term mortgage is the very best hedge against inflation available to we middle class Americans. If you get a bank locked in at today's relatively low interest rate for 30 years, then that's all you'll have to pay no matter what happens to interest rates. If your home is financed at 6% for 30 years, then even if rates go up to, say, 12%, as they did in the 70's, you can never be made to pay a higher rate than that 6%. Pretty compelling, isn't it?

There are two other clear decision points in our lives when borrowing makes great sense: when paying for college and when starting a business (and in each instance, you can use the equity in your home to get a leg up).

In our next installment, we'll talk about the mechanics of borrowing - from a lender's point of view.

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