Should I Buy a house in US on a work visa?

For the past 4 or 5 years the job market has been pretty robust for IT people. This has generated a wind fall of money for lots of Indians in US. In an informal survey of my friends I found that more than 50% of them actually make at least six digits a year!!! One thing that confronts these Indian techies is whether they should buy a house US or not!!

Most of my friends are in a work visa(like H1B). This is because of the huge waiting time in the green card process. Buying a house on a work visa definitely presents a dilemma. The problem is what would happen if the house owner is forced to go back to India. Would you lose all your money?

I personally tend to feel buying house in US at this point of time is a good idea even if you are on a working visa provided you do your research well and live well with in your means and you meet certain other criteria!! For the rest of this article assume that you are someone who does not voluntarily want to leave your job for the next 5 to 10 years.(I know some people want to go back. So for them buying a house is not a good idea)

The way I look about it is first you should make sure you save your emergency fund. This fund should be saved in Indian Rupees and preferably deposited in a nationalized bank. Calculate your expenses in India and make sure you have money for a couple of years living expenses.(Better yet see if you can save enough money that the bank interest from that money could fetch you a middle class living in India.)

Then you should buy a property India!! The rational behind this is if you are forced to go back to India on a hurry you should have enough money to sustain yourself for few years and a place to live.(Even if you dont live in the house you bought, the house you bought should generate some rental income which could partially or fully cover for the rent of the house you actually end up living).

I know getting the first 2 things right is pretty difficult in itself and is expensive as well. But I do feel if the above 2 criteria are not met then one should not invest in US unless they have a green card or citizenship. So assuming those 2 criteria are met and you dont have of any plans of leaving your job voluntarily for the next several years then you can start thinking about buying a house in US provided you have enough money left.

One thing that works in buyers favor right now is that the housing market is in a distressed state. So it should be easy enough to find a bargain. So assuming you have 20% for the downpayment of house and you are able to get a good deal, and you are not overextending yourself in mortgage payments(my rule of thumb is if you are paying more than 25% of your after tax disposable income on housing then you are overextending yourself)) I say go for it!! The following questions do pop up in people's mind:

1. What happens if the value of the house falls next year.
2. What happens if I am forced to quit my job and housing market is in a bad state(Because everybody is getting laid off and selling their house).
3. What happens if rupee appreciates against the dollar making your house worth less than what you paid for.

To answer the first question: Nobody knows what is going to happen to the housing market next month or next year. It is pretty difficult to predict the short term future. Even the so called experts get it wrong. Look at the state of the US economy today. They have people in wall street who have Noble prize in Economics and they still got it wrong. So people like us reading wall street journal cannot figure out the housing market.

However one thing that any body can predict is in the long term having assets in America is a good thing(As you extend your time of prediction your predictions become accurate!! It is the next 5 years that are difficult to predict). So it is more than likely that the property would raise in value in the long term. After all America has the right ingredients for a succesful economy.(Fair legal system, free markets, Creative bright people from through out the world). So even if there are intermediate glitches they will work themseveles out in the long term.

Ok even if the house prices increase in the long term what if you are forced to sell the house on the bottom of the market. This is pretty much our second question. There is a possibility that waves of lay offs might come out of this economic crisis. The answer to that question again is nobody knows what the future holds. First make sure your company is not in immediate danger and your performance in your company is good. Assuming those things are true the key then is dont overextend yourself in mortgage.

This naturally begs the question even if there is a small chance of this happening why do I even invest? The answer is some amount of debt and risk is good for you!! If you want to be absolutely certain then there is nothing you can invest in. Even bank deposits are not good enough because if the inflation is quite high then you lose money on bank deposits. So make sure your monthly mortgage payment is something that you can afford easily.

So what if the worst case scenario actually happens? Am I covered:? The answer is you probably will be fine. You already have the safety net in India. Nobody can confiscate that. However the money you paid for the downpayment and mortgage payment in US is lost. You will have to surrender the house to the lender. This is the risk you are taking upon yourself.

But I consider the possibility of something happening like that to be very low. The reason being if you were in a good position in a stable company and you are laid off and cant find another job then it means most of the US economy is down. Unemployment is probably in double digits. The so called experts in wall street and Washington should have predicted at least that scenario and should have taken steps to correct that. But who knows?!!

Which brings us to the third question. What happens if Rupee appreciates against the dollar. Again let us remind ourselves that nobody knows what will happen in the future in short term. But one thing that we can say for sure is both these countries would grow in the long term. However we dont know which will have the best growth rate(The thing in India's favor is it has lots of room to grow. But the problem is we dont have the right capitalistic ingredients. Meaning we dont have honest politicians, fair legal system to protect copyrights and trade secrets etc. People think these are important ingredients for any country to grow over a long period of time). But in a sense it does not matter which country has the better growth rate. If you have houses in both places you are getting the best of both places!!

I of course have to end this with the disclaimer. These are just my personal opinions. I am not responsible for any profit/loss you make out of this post!!