It’s the time of year where many of the 20-somethings who fall into the renting population of my pool of friends start talking about buying a house. The justifications are usually the same, regardless of the person I talk to. They want to build up equity. They want to get mortgages with low rates. They want to buy while prices are low.
I rarely walk away from the conversation without feeling a little concerned. What is often lacking from the discussion is whether or not my friends are even ready to buy. If you’ve never thought about whether or not you are ready, these are the questions you should be asking yourself before you consider paying a 30 year mortgage.
What money do you have left after a mortgage?
The world of financial writing has done a great injustice to the millions of first-time homebuyers. Most of the financial considerations people focus on at the time of buying is:
1) How do I get money for a down payment
2) And how do I free up enough money for the mortgage payment.
If these two questions aren’t easy to answer, you probably have no business being in the housing market. That’s because there is an even bigger third question that most buyers never ponder. How will you come up with the money to replace the furnace, boiler, roof and siding? If you are scraping money together for a mortgage payment, you clearly don’t have the financial resources to shoulder all the maintenance needed to own a home.
Are you sure you want to live there?
Most of the young buyers I know who wind up selling in the first five years are making the move because they bought before they knew what the area was really like. They bought houses in rough neighborhoods. They bought out in the country before they realized that they wanted to be closer to the city life where friends and co-workers lived.
I don’t know how you can simply buy a house before moving into the area and seeing how living matched with the ratings online.
Sometimes it’s better renting for a year before committing to a location you don’t know much about.
Do you really have the time?
Do you remember your childhood and how your parents’ neighbor spent his entire Saturday out in the yard mowing grass, trimming trees and raking grass? That’s because most of us home owners need to spend a great deal of time maintaining a home.
One bedroom, a bathroom and a common area are easy to maintain compared to a 2,800 square foot, four bedroom and two bathroom home. You’d be surprised at the difference, and it gets harder once children start adding to the mess.
To a large degree, those of us who own actually get some enjoyment out of this type of constant home maintenance. If you dread cleaning, yard work, and maintenance, either you should stick to renting or be willing to hand out cash to maids and lawn care companies.
Avoid the pressure to buy!
One of the most important things to mind is the financial pressure that is placed on renters to buy and buy now.
Right now home prices are low, which means everyone is convinced that they need to buy now or miss out on a deal. What happens when prices are high? Renters are pressured to buy now or risk getting priced out of the market with even higher prices.
Right now loan rates are low and as expected, everyone feels pressured to buy now to get a deal on interest payments. What happens when loan rates are high? Everyone feels pressured to get a mortgage now before rates get even higher and buying is impossible.
The lesson is this: it doesn’t matter how low or how high the pressures of price and interest rates are, you are going to feel the same pressure no matter what the lending or home buying industry is like. It’s hard, but you need to ignore those arguments. They unfairly pressure you into buying regardless of the market’s actual position and your actual financial situation.
I hope that you are ready to buy a home. I love being a home owner. I get enjoyment from some of the work it requires. I love watching my equity and net worth grow. However, not everyone is ready and the worst thing you can do is saddle yourself with an expensive financial burden that’s difficult to ditch when things get tough.