Two years ago, my wife and I were looking to make the big move to Boston. It wasn’t just any ordinary out-of-state move, because we had job stability. Mrs. 20s had a job based out of Boston, and she had been working remotely while she was finishing grad school. I worked for an organization with an office in Boston that would allow me to transfer offices. Actually, they encouraged the move.
Because of this stability, we felt good about exploring all types of housing when we were planning the move. It was difficult to find an affordable apartment to rent, so we explored buying a home of our own – or technically, a condo of our own. As many of you already know, we have since bought a home. Knowing what I know now, I’m really glad that we didn’t buy a home a year before we decided to make the leap – because we wouldn’t have been ready.
That’s right – I’ll be the first to say that we would not have been ready to buy a home if we had bought a year earlier. And here’s why:
Why I’m Glad We Waited to Buy our Home
I’m glad that we didn’t make a mistake of buying too early, and am happy to share the ups and downs of the the year after moving to Boston, to help others avoid the same mistake.
My Wife Lost her Job
As I’ve shared before, my wife was laid off from her previous employer. At the time, we were really worried about what this would mean for us. Luckily, we had a large emergency fund (supplemented by the down payment fund), so it wasn’t like we were going to run out of money, or be unable to pay the bills. However, it did mean that we had less income coming in. If we had spent all of our savings on a down payment (as we did almost a year later), things could have been tight.
Another fortunate thing is that we both work. We don’t earn a lot of money as nonprofit professionals, but we earn enough to get by. This means that while my modest salary is far from adequate to pay all of our bills by itself, my income does cover most of our mandatory expenses. In other words, we could have survived on my income for a long time while only dipping into our emergency fund a little. If you are a family with one source of income, you need to evaluate how stable your job is and then double check your assumptions – because everyone tends to think their job is more secure than it truly is.
Oh, and if you’re curious, Mrs. 20s got a better job 3 days latter, only to find yet another job with even more job security a few months after that. It definitely worked out in the end – but was somewhat concerning at the time.
We Didn’t Have Enough Money for 20%
I’ve shared before that saving for a down payment can be quite the challenge when you live in the Northeast – or in any city for that matter. Home prices are continuing to rise, and that means that you need even more money if you want to avoid private mortgage insurance (aka PMI) – which is 20% for those of you who are new to home buying. While my wife and I had some decent savings, the reality is that we were only had about 10-15% saved.
Technically we could have bought with this much money – or even less. There are many state programs that allow 100% financing. I didn’t want to do that and I’m glad we waited. Not only did waiting lower our mortgage payment for the next thirty years, but it also gave us more security. We didn’t deplete our savings, and ultimately allowed us to survive the challenges that life threw at us.
Additional Tip: If you are looking to save up a down payment, you don’t have to keep it all in one place. Instead, use a free tool like Personal Capital to monitor your assets. I used it when I was saving up a down payment, and I still use it obsessively to this day.
We Didn’t Know the Neighborhood Well
Another mistake people make when moving out of state is that they buy a home without knowing the area that well. While some may know friends or family who can help inform their decision, that isn’t always a guarantee. I know from my family that my siblings enjoy having space and property out in the middle of nowhere, while I love the city life. To me, there’s nothing nicer than getting to and from work without having to step into my car.
The bottom line is that everyone has different preferences of where they want to live and buying without knowing the area can be a costly mistake – especially since the transactional costs of buying and selling a home are so steep. By renting for a full year, we were able to survey the neighborhoods around us – we were able to find a nice neighborhood, but not the most expensive neighborhood (yes, there are more expensive areas to live in Boston than our neighborhood).
Risks of Buying Too Early
While we are more than happy that we waited an extra year to buy, every situation is different. Could we have survived if we had bought a year before? Yes – but by waiting just one more year, we avoided all of these risks of buying too early.
1 – The Housing Market Could Drop
As many of my older readers know, buying a home right before property values drop can limit your flexibility. Imagine you buy a home for $300,000 with 5%, or $15,000 down. Now, $15,000 is nothing to sneeze at, but if property values drop 8% in the first 1-2 years of home ownership, you are going to owe more than the house is worth. Add in the 5-6% in commission that you will have to pay to sell the property, and you are losing a lot of money IF you have to move.
The reality is that most people (who again, are likely buying a home with little down because it’s hard to save up the money) won’t be able to sell in this situation. That means YOU ARE STUCK, and it may be years before you have equity in the house again.
2 – Unable to Manage Financial Crisis
No one plans for financial disaster, but yet it does strike. The truth is that a number of things could happen immediately after buying your home:
- Lose your job
- Car(s) need replacement or serious repairs
- Major home repairs (replacing appliances, heating/AC, roof, etc)
- Diagnosed with a serious illness
This list could go on and on. The reality is that emergencies happen, and if you buy too early, you run the risk of facing those emergencies with depleted savings, increased expenses (since your mortgage will be higher), and less job security.
3 – You’re not settled
I’m always surprised to hear of friends or family who buy a home when they know, or even suspect, that they will be moving just a couple years later. It could work out in their favor if the market goes up, but it could also mean that you buy a home, only to sell and pay the transactional costs twice in such a short period of time.
Additional Tip: If you want to build wealth, experts agree that you should buy and hold your primary residence to avoid the transactional costs.
If you are thinking about buying a home, take some time to think about whether you are putting yourself at risk. It’s much better to wait another year or two, build up your savings, and then take the plunge than it is to buy and regret it. While I have seen my net worth benefit from owning a home after only 9 months, it does come with additional costs, so take every precaution.
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.
I agree – buying when renting costs = mortgage payment makes a lot of sense to me.
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.
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.
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:
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)!
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.
Buying a home is really a huge decision and you really need to be well prepared financially before you take the leap.
Thanks TCI. As much as I want to buy now, I know I need to wait. It just kills me having to wait though.
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.
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?
Thanks Kevin. Like I said in another comment, I hate to wait, but I know it’s the safe thing to do.
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.
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.