Answer These Five Questions and You Will Know if You're Ready to Buy
"You're throwing your money away paying rent!"
"Why are you paying your landlord's mortgage?"
Do these sound familiar?
If you're one of the 111,054,354 residents in the United States who lives in a rental home, you've likely encountered this statement and rhetorical question at some point.
Sure, the people making those statements and asking those questions may mean well, but oftentimes they fail to realize that not all circumstances and lifestyles are created equally.
Buying a home can be a great move for most, but not for everyone. What's good for the goose is not necessarily good for the gander when it comes to homeownership.
Before you download home search apps, talk to a mortgage lender, and attend open houses. It's important to self-evaluate your current lifestyle and financial situation to avoid making a costly mistake.
Answering these five simple questions will let you know if you're ready to take the next step to buying a home.
1. Are my finances in order?
Do you pay your bills on time? Do you have cash in the bank? The average first-time home buyer has a down payment of 5% of the purchase price. You can put as little as 3% down.
If you're two months late on your car note, adding a mortgage, property taxes, insurance, maintenance and repair costs to your monthly expenses will only add to your money troubles.
If you have to beg, borrow, and steal (please don't) to come up with a down payment, you're likely not in a position to buy a home right now. You have to prove you have the ability to save money before you start looking at pretty homes online.
If your answer to this question is "no", stop right here. Do not pass go.
2. Do I move a lot?
Are you ready to tie yourself down to a particular home in a particular neighborhood in a particular city for at least three years?
Will your job or career focus force you to move within the next five years?
The general rule of thumb is to make plans to stay in a home in the Washington, DC area for at least three years in order to break even after you account for closing costs, moving costs, the cost of remodeling, and the cost of selling. A home needs to appreciate by at least 7% to break even when you sell it. The national average for home appreciation in the United States is roughly 3%. Logan Circle in Washington, DC appreciated 6% in 2017.
If you can't see yourself living in the same home in the same neighborhood in the same city for the next three years, you may want to reconsider that purchase.
3. Am I emotionally stable?
Plan on buying a home with your significant other?
While there's no crystal ball for relationships, you may want to continue renting if your relationship is already "on the rocks".
If you think a change of environment is what's needed to recharge your relationship, consider renting another home and see how things work out before committing to a large investment like buying a home.
Remember, the general rule of thumb is to make plans to stay in a home for at least three years to break even.
If you can't see yourself living with X for another five months, let alone three years, DO NOT BUY A HOME with X.
Save yourself the money, time, and headaches.
4. What are the opportunity costs of owning a home?
When you buy a home, you'll need money for a down payment (typically equal to at least 5% of the purchase price), as well as property taxes, insurance, maintenance and repair costs.
What kind of long-term return could you expect if instead of buying a home you invested that money in the stock market, angel investing, or YOURSELF?
If your rent is cheaper than your mortgage, you may be able to invest the difference elsewhere and earn a better return over the long term instead of "putting all your eggs in one basket".
5. What's happening in my market?
Before asking this question, you must define what your market is.
You may have heard about the three rules of real estate - location, location, location. The real estate market not only varies from city to city, it varies from neighborhood to neighborhood, and housing type to housing type.
The market for single-family homes in Bethesda is drastically different from the market for condos in Bloomingdale.
Is it a buyer's market or a seller's market in the area or neighborhood you're interested in buying a home in?
Is it a renter's market or a landlord's market?
Knowing what's happening in the market you want to buy a home is a major key when deciding if now is the right time to buy.
To buy or not to buy a home is a personal decision
The point is you don't have to buy a home to "keep up with the Joneses".
We've seen that script play out way too often; people who feel the overwhelming pressure to buy a house because a friend bought a house, then another friend bought a house, then another, and next thing you know, peer pressure forces them to buy something they didn't need or couldn't afford.
We highly recommend a buyer consultation as your first step. We'll buy you coffee and provide a free education on the pros and cons of buying, the process, financial etc., so whether you buy in 60 days or 2 years, you know exactly what you're getting yourself into.
COFFEE + EDUCATION If you're just starting to think about buying a home, we believe t...