Are you thinking of buying your first home? You aren't alone.
This milestone is a right of passage into adulthood. Or at least that's what a lot of people think. There's a sense of societal pressure to conform and buy a house.
For most people, homes will be the most significant purchase they make, so it is crucial to understand whether you are ready to make the jump, or whether you should hold off a bit longer.
Today, let's explore whether it even makes sense for you to consider buying now.
The Temptation To Buy Is Real
We can't deny the allure of buying a home. From a cultural perspective, we are all bombarded with images of how the American dream looks. A charming new home with the picket fence and the large yard with green grass for the kids to play on. At this point, homeownership is as American as apple pie.
Isn't Buying A House An Amazing Investment?
A person's home tends to be their best investment over their lifetime, but the reason why might surprise you. It's not because real estate is the best-performing investment class. The stock market has historically outperformed housing prices!
However, homeowners tend to hold their investments for a very long time and don't try to sell whenever the housing markets are up. Remember what we told you about trying to time the market? (Hint: don't do it.)
Everyone says buying a house is a no-brainer. I mean, who doesn't want to build equity for themselves instead of making it for their landlord through rent payments? The problem with this line of thinking is that it assumes that paying rent is a waste of money.
The truth is that unless you view a roof over your head and a safe place to sleep as a waste of money, then paying rent is not a waste at all.
If you have your mind made up and are ready to buy a home, there are some essential factors that you should consider before going house hunting.
Does Buying A House Make Sense For Me?
Is your social & domestic situation stable?
If you are planning to purchase a home with a spouse, significant other, or friend, you need to be sure about the relationship. People and relationships change over time, and you can't predict the future, but if you aren't confident about the relationship, then now is probably not the best time to buy a home with that person. The cost of buying and selling a house after a few years will likely end up costing you more than if you had rented.
Alternatively, if you and your partner are hoping to very quickly expand your family, then jumping into that one-bedroom house isn't the right move.
Before buying, you also want to be as sure as possible that you like the neighborhood, city, school district, etc. If you know there's no way you'd want to be in a specific place long-term, then it doesn't make sense to buy a home even if you think you're getting a killer deal unless you plan to rent it out to others eventually.
Are you currently working at a job you enjoy or industry you love and plan to be there for the foreseeable future?
If switching careers or going back to school is on the horizon, it's probably also not a good time to be looking to buy a home, unless you have a very secure plan for making your mortgage payments. You don't want to go through a stretch where you won't be able to make your mortgage payments once your emergency fund runs out. If you think paying rent is a waste (it's not), then imagine the feeling of making years of mortgage payments and having your house taken away.
Again, things change, and stuff happens, but if you're on probation at work, it makes sense to figure that out before buying a house. A new job may also make your new commute unbearable, so be sure to take that into account.
Are you financially prepared to buy a home?
Do you have enough money saved up for a down payment, potential repairs, and all of the taxes and fees that come with ownership? We recommend saving 20% for a down payment on the home to avoid having to pay for private mortgage insurance (PMI). Saving 20% for a downpayment isn't always possible, and we totally get that.
Your credit score should also be in great shape to ensure you get the lowest interest rates. Even small changes in interest rates can lead to BIG differences in interest paid over the lifetime of your mortgage.
Remember that no more than 30% of your take-home income should be spent on your housing. Mortgages and related costs are no exception to this rule. The less you can spend on shelter, the more money you'll have to save and invest.
Did You Pass The Test To See?
If you answered ‘no' to any of the above questions, then it makes sense to rent a little longer. Depending on your situation, renting could end up saving you money long-term when compared to buying.
Quickly changing your mind can also be very costly. Buying and closing costs each time you buy or sell a home are not insignificant, and there's always the chance that your home could go down in value!
In terms of full transparency, both of us have always rented because we've only ever been on the move for school, work, etc. Our geographic uncertainty meant we've always ruled out buying. We have tons of friends who own their houses, and that's okay too. You have to do what is right for YOU.
Lastly, just because you're renting does not mean you have to cram the family into a small one-bedroom apartment. You can still rent a spacious four-bedroom house with that large yard you've always wanted. Just make sure it fits into your budget. It's okay to rent for a few years while you figure out if that new job or neighborhood is the right one. The most important thing is making sure your social, professional, and financial lives are all ready! It's better to delay and make the right decision than to rush and make a choice that is tough (and costly) to unwind.
Still Not Sure If It Makes Sense To Buy Your First House Yet?
Our awesome article on Renting vs. Buying A House explores when it makes more financial sense to purchase vs. rent a home.
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