“What to Consider when Buying a House”

It’s the American Dream, right?  Buying a home seems to be a rite of passage in the United States.  A move that will take you from pretending to be an adult to actually being one.  At least, that is what so many have perpetrated and believed for decades.  While a home purchase can make sense for some people, it isn’t the right decision for everyone.  For many cities in the United States, renting is a more financially sound decision that buying.  Additionally, as the United States (and the wider world) continue to become a smaller place, people are moving more often which can put a damper on the benefits of owning property to live in.  In this article, we overview 6 topics for consideration if you are looking into a home purchase.

1. First, Ask Yourself Why? – Perhaps the most important question to ask yourself. Why do I really want a home?  Am I doing it because that is what I’ve been told to do?  To Keep up with the Jones’s?  Make sure you are buying a home because it is what YOU want to do and because you are ready to settle into an area for the foreseeable future.
2. Rent vs. Buy – Do I live in a city with reasonable rent vs. purchase prices? The price-to-rent ratio is an important consideration.  This is calculated by dividing the home value by the annual rent amount.  If the ratio is less than 20, then buying MIGHT be a better option.  If more than 20, then renting MIGHT be the better option
3. What other debts do you have? – Even if the first two questions push you towards a house purchase, you need to consider your personal balance sheet. What other debts do you currently have?  If you have a lot of consumer debt with high interest (credit cards, automobiles, etc..) then you should consider paying these down first before saving towards a down payment on a home.
4. Gain Pre-Approval – If you’ve decided that this really is the time to buy a home for you, then it’s a good rule of thumb to gain pre-approval from a bank or lending institution. Best practice would be to gain two pre-approvals so you can leverage them against each other for the best interest rate.  Keep in mind that banks tend to say you can afford MUCH more house than you might think.  Keep to your budget even if the bank says you can afford a bigger house!
5. 20% Down and Closing Costs – Avoiding Private Mortgage Insurance by having a 20% down payment is a good rule of thumb.  Remember, the down payment is only part of the picture.  You should also estimate an additional $10,000 to $15,000 in closing costs and fees to finalize the transaction.
6. Think economically, not emotionally – While you want to find a home that feels good, it’s important to remember that most people tend to move every 5 years or less. This is likely not going to be your home for the rest of your life.  Think economically and not emotionally when making the purchase decision.

If you, or someone you know is thinking about buying a home and would like to ensure their broader financial picture is in order, then reach out and speak with on of our financial advisors today!

September 13th, 2019