The Risks of Buying a Home Too Early

We’re planning for the big move that will happen in a few months. Part of that planning involves looking into housing options, which include both renting and buying. Considering that we live in the North East, where homes and property taxes are quite expensive, it has never been part of our plan to buy this early.

As we’ve been looking to rent a place, I’ve had trouble finding an affordable place to live in the neighborhood that we want to live in. We’re still months away, but I’m starting to believe we won’t find the perfect place by renting. It’s made us consider buying as an option, and ultimately question whether we are financially ready to buy a home. While I hate to throw money down the toilet, I’m still weary of buying a home at this time. I just don’t think we are ready yet. We’ve been doing well for the past two years – we’ve finally have found some ground to stand on, but that doesn’t mean we’re anywhere close to buying a home.

Reasons Not to Buy Too Early

Part of my reluctance stems out of experiencing many people close to me being “house-poor.” I’ve seen what it does to people – the stress that it puts on people, the limitations not only financially but also socially, and that’s only the beginning. Many young adults, when they start earning decent money, don’t think about losing it all. But, that’s exactly what could happen. You may think I’m being dramatic, but here are the things that you are putting yourself at risk to when you buy a home before you are ready.

Losing Your Job

Both my wife and I have good jobs. We’re not the highest income family by any means, but enough to be thankful for. Even though I feel secure about both of our jobs, that isn’t to say that our employment is guaranteed. We’re ambitious and we work hard at our respective companies, but things could take a turn for the worse and one or both of us could be let go. This might be worst-case scenario, but it’s still possible.

Owning a home would be significantly more devastating than renting in this situation. If one of us lost our job right now, while we are renting, we could still afford our rent and we have our emergency fund to help us through the worst of it. If it got worse than that, we could move to a cheaper place to live. If we owned a home, our living situation would be more concrete. In other words, we would be stuck. Forced to pay the mortgage payments, property tax, insurance, etc. While there will never be 100% guarantee that we won’t lose our jobs, there are a few things that put us, as young adults, at more risk than others.

  1. We don’t have a large amount of savings to protect us for a long time without jobs
  2. Both of us don’t earn enough on our own to pay all of our bills (including the costs of home ownership) without putting a huge strain on our finances.
  3. We only have a few years of relevant work experience. While I’m confident that both of us could get a new job within a six month period, we would have more security if we had just a few more years of experience.

Housing Market Crashes

Another possibility is that the housing market could crash again, making us owe more money than the house is worth. This would not only put a huge strain on us financially, but also restrict us from moving, should we choose to relocate again. Of course, we could rent out our condo if we were unable to sell, but again, there’s no guarantee. Since we are young and there’s still a slight chance that we could re-locate again, this puts us at an increased risk. In fact, regardless of whether the housing market crashes, we could be stuck in a home or forced to sell at a loss. While everyone is quick to point out how renters are throwing money away, hardly anyone emphasizes the importance of being able to pick up and leave without being tied down to a home.

The simple fact is that young adults are playing against the odds. There are too many things that could go wrong. Not only are you earning less money, have less work experience, and less savings than at a later age, but also more likely to move. If one thing goes wrong, you might be able to survive. If multiple things go wrong or one bad thing lasts for a long time, you could end up losing money or worse, lose your home. You may not think it could happen to you, but it’s better to be safe than sorry. That’s, at least, the logic that I’m living by and thus why we’re not pulling the trigger on buying a home just yet.

14 Responses to The Risks of Buying a Home Too Early

  1. Thomas says:

    As with a lot of things you need to be aware of your own personal situation before going out to tackle buying a home. If renting works best or living with someone do that. Don’t just buy for the sake of buying. I like the idea of owning a home especially if the costs are similar to those of you renting.

  2. Micro says:

    Relocation has been a huge reason why I am hesitant to buy a house. Not even a year ago, I was working without any thought about changing jobs. I then was contacted by a former boss about an opportunity down in GA. If I had been living in a house, I wouldn’t have had the luxury of being able to pick up and move.

    • Corey says:

      Thanks for sharing, Micro. It makes me a little nervous to settle down. I’m afraid as soon as we buy, we’ll have a great opportunity out of state.

  3. moneystepper says:

    For your own home, you shouldn’t worry about house market crashes too much. Other than the absurd house market bubble in the mid 00s, it has historically not taken more than 5-10 years for house prices to reach their former prices after a crash:

    http://www.jparsons.net/housingbubble/

    In my opinion, if you are buying a home, you should be aiming to live their for at least 10 years and so this shouldn’t be top of your list of concerns.

    However, you are right to be worried in other areas! People often “want to get on the property ladder” without thinking properly whether they are financially prepared to take on such a monumental debt (the biggest debt you will probably ever have in your life)!

    • Corey says:

      Thanks Moneystepper. Great graphs that you shared. That’s a great point. I’ll take the 10 year metric into our decisions over the next few years.

  4. Kevin Watts says:

    Buying a house in these days with less saving is a curse. People should make plan and calculate all the possibilities of accidents beforehand. Before buying a house people should think about all the sources of money they can manage in case of something bad happens. You and your wife took a wise decision not to buy a house at this stage.

  5. Buying a home is really a huge decision and you really need to be well prepared financially before you take the leap.

  6. Looking back I think I may have bought my condo a bit early. At this points its fine, but if I could do it over again at the time when I Was still living at home I would stay for another year or so.

    • Corey says:

      Thanks for the piece of advice, Edgar. What makes you think it was too early? Do you just wish you had more for a down-payment or more money for a cushion? Or was it an issue of freedom?

  7. Hi Corey,
    After a crash is when assets are safest. If you plan to stay 5+ years its worth it to buy, however you automatically lose 6% (based on selling commissions) Good luck on the house.

  8. Mike Collins says:

    Buying a home is a huge commitment and you’re smart to wait until you’re sure all of your finances are in order before jumping in.

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