Owning your own home is the epitome of the American Dream. It has been drummed into our heads all our lives, for generations. Homeownership is not just to be strived for, but essential for happiness, we’re told. But this mindset has resulted in more of a nightmare than a dream for far too many people.
Too many ignore the factors that need to be considered prior to committing to such a large purchase. So how can you know if you are REALLY ready to buy a house?
The income factors in buying a house
You should wait to buy a house until your income is reasonably stable, with either a job in a promising career field that you’ve trained for, or a business endeavor with a steady track record of income for a couple of years.
If you’re working a job that is just filling a gap, like a side hustle in the gig economy, while you look for a better job , then you should probably wait. If you own a business, you should work it for a couple of years to make sure the income will be steady.
And when you take out a mortgage, the total monthly payment (including property taxes and homeowner’s insurance) should be significantly less than 25% of your take-home pay. That’s way less than lenders will tell you that you can afford. Don’t believe them.
The expense factors in buying a house
The expenses of owning a home are far more than just your monthly mortgage payment. Too many people compare that figure to their rent payment and conclude it would be better to buy.
But there are a myriad of things that your landlord pays for that you don’t have to. So you need room in your budget to cover maintenance and repairs of everything in that house. Therefore, before you buy, you should….
- Be completely debt-free otherwise. No credit card debt, no car payments, no medical debt, no student loans, no personal loans. Otherwise, your take-home pay will be eaten up by those things, leaving no money to take care of a house.
- Have a fully-funded emergency fund of 3 to 6 months of expenses, banked in a liquid savings account. This will cover those large expenses (like a new furnace) that you’ll have because you no longer have a landlord to call. It will also allow you to pay your mortgage after you lose your job, while you find a new job. It takes a lot longer to sell a house you can’t afford than it does to vacate a rental!
- Have a healthy down payment (in addition to your emergency fund). Like 20% down, so you avoid an even higher mortgage payment due to private mortgage insurance (PMI), which will be added on if you put less than that down.
The personal factors
Don’t buy until you’re sure about where to buy, both by price range (see above) and personal factors.
Consider family factors. If you’re newly married, it’s best to wait a year or so. You may regret a rash decision to live across the street from your in-laws.
If you don’t have kids but plan to, you’ll still want to consider the quality of the school district. Otherwise, you’ll end up having to sell and move to a better district in just a few short years. Possibly much sooner than you ever planned. Think ahead.
If you’re in the military, or certain clergy denominations, you might be forced to move every 3 to 5 years. You should NOT be buying a house in that situation. You’ll end up with houses dotted all over the country, that you can’t properly manage as rentals.
Renting is not evil. Renting is not stupid. It is not “throwing your money away”. Renting is a reasonable financial option for certain phases of life. It teaches you discipline and gives you time to carefully consider all your options. Being patient while renting, and getting all your ducks in a row before buying, is part of financial WISDOM.
If you’d like an objective opinion of whether YOU are ready to buy a house, schedule a free consultation with me at my website www.moneycoachbev.com. I won’t steer you wrong.