Having sold a home recently, it still amazes me that people are practically stepping on top of each other to buy a home during this pandemic when no agent is allowed to host an open house. Mortgage rates are crazy low right now, but is the monthly payment the only thing you should be considering?
Sure, the economic numbers aren’t as dire as what the experts feared at the onset of the shutdowns, but aren’t there too many people thinking that now is the time to buy a home? Is the fear of missing out happening not just in the stock market but in the housing market as well? While it’s no doubt tempting to rush out and buy a house, whether now is the best time for you to purchase a home isn’t a sure thing. Give these questions some consideration before you decide.
Why Do You Want to Buy a Home?
Before you buy a home, it’s important to explore your motives. Be honest with yourself. Why do you want to buy a place? Are you tired of renting? Do you want a place you can call your own? Do you hope that, by buying now, you will have an appreciable asset you can tap into later if you need to? Do you think you will buy the home as an investment property and rent it out to generate an income stream? Do you want to buy it because owning the place you live in seems like the thing to do?
The motivations behind your desire to buy a home should be examined. If you are buying because you think your primary residence counts as an “investment”, it might be time to rethink that position. Consider the costs associated with your home, from the mortgage and interest (the interest!) to property taxes to maintenance and repairs. Even with tax advantages, you might not be able to make a convincing argument that your home will increase enough in value to constitute an investment.
However, if you are buying because you would like a place you can call your own, providing stability for your kids, and allowing you adequate space to enjoy your life, then it might be worth it to buy a home. The house may not end up being a great financial investment, but the emotional investment might be worth the monthly expenses.
No matter your reason for wanting to buy a home now, you should critically examine your motivations, and then come with counter-arguments for buying a home. You should consider that things will not turn out as you would like if you attempt to rent the home out for extra income, or that perhaps buying just to buy might not be the best reason for getting anything — especially something so expensive as a house.
Are You in a Position to Buy?
Another issue to consider is whether or not you are in a position to buy a home. We’d like to think we learned our lesson in the financial crisis, but some lenders are relaxing their requirements on documentation again because they are just swamped with applications to approve. There are so many requests to refinance that my mortgage broker friend, who works on commissions, is trying to work less! Before you consider the biggest purchase of your life, your debt should be under control. You should also have some sort of reliable income. Additionally, you should have a down payment saved up, and be prepared to handle the extra expenses and responsibilities that come with homeownership.
Take David’s case for example. He bought his home right before a once-in-century pandemic. If his finances weren’t in order, you’d bet he would be sweating bullets. Yet, he shouldered on and carried on. If he didn’t have the finances to really afford the place, he might’ve panicked and try to sell out of it. At the very least, he would’ve been extremely stressed out during those few months.
Now, the value of his home likely increased already. That shows the power of buying a house that’s affordable versus trying to stretch into a home purchase.
Take an honest look at your finances, and figure out whether you are really in a position to buy. The best deal in the world can’t compensate for not being financially ready to own a home. The last thing you want to happen is to immediately feel stress out once you move in.
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Owning a home beats renting one. But like you said in your great article, timing matters. The wrong timing could be catastrophic and therefore appropriate planning and preparation is important. Thank you
A home purchase IS an investment……..how good (or bad of one), is up to the buyer, the price they pay & the LOCATION, LOCATION, LOCATION of the property.
I know, repeat, KNOW that our home is and has been a great investment, because of where we bought it, the price we paid and the actual value of the home (not perceived). We got a steal of a buy in 2009, on a foreclosed home, inside the beltway in Washington DC, near great schools, the Metro, parks, a suburban downtown hotspot and less than a mile from the beltway. We’re half a mile away from the DC line & a 20 minute commute via Metro or car, into the heart of DC, yet we live in a County that has the best public schools in the nation.
We initially put 40k in necessary upgrades to the foreclosure through a 203k loan to get the place into pristine shape (new boiler, new ac/heating, new windows, new gutters, re-finished the hardwood floors, re-finished the basement, new plumbing, upgraded kitchen, etc.) and since then we’ve added about another 10k out of pocket for a new driveway, privacy fence, custom built storage shed and new landscaping. You can’t even tell the new house, from the one we bought in disrepair, 4 years ago now.
We re-financed the original 203k loan in 2010 (which was at 5.5%) down to a 3.76 fixed 30 year & we make additional monthly principal payments + a bi-weekly mortgage accelerator. The house will be ours in 19 years, if we stay on pace.
Our area (Washington DC metro area/inside the beltway), is one of the priciest in the country and the population here is expected to DOUBLE in the next 7 years, with no room for new home construction. No matter what happens with our finances (even the worst), we can always rent it out in a heartbeat for well more than our mortgage OR walk away with a big chuck of change, as we just professionally appraised for 185k MORE than what we owe on the mortgage and the sold comps in our neighborhood are typically about 15k even higher than the appraisal price. Houses in our neighborhood stay on the market for an average of 20 days and most get asking price or more/multiple bidders.
Summary: My wife and I patiently waited for a situation EXACTLY like this one and looked at over 100 houses in 18 months, before we found the one that fit ALL of our criteria (because we’re NOT rich, but we live in a very affluent area)……..so we couldn’t be happier. Otherwise, we would still be happy renting rather than making an impulse buy, in a location where prices were too high or a place further outside the city, where the prices wouldn’t hold.
LOCATION, patience and timing folks, no magic or mystery to it at all.
Best of luck!
One other thing…if you are in a position to buy a house…wait…the prices will continue to fall as more and more people lose jobs and homes. It may be the easiest way to save your money.
Hi,
“And, with the economy showing signs that the pace of recovery might pick up”
I just don’t see this happening until jobs are created. It’s no secret that Michigan’s economy is in the toilet. Steelcase recently announced it’s moving it’s three plants to Mexico. How will those former employees, as homeowners continue to pay their mortgages? This scenario is being repeated in every state to some degree. I see the key word being, “Might” in that sentence. It’s hard for people to face reality. We will continue to lose ground until people find good jobs. Period. I would love for you to convince me that I’m wrong.
Buying a home is still the best long term investment hands down. Keep renting and see how that feels when your retirement plans take a dump. Retirement plans are based on the market value, and the money you put it can be lost with a market swing. Making regular mortgage payments on a normal amortized mortgage loan will equate to a principal reduction over time (make the distinction here between housing and investments) and if you time it right, you will have no rent in you retirement years. The difference is, I am paying something off with a mortgage and not banking money that can fluctuate. My home value may fluctuate but end of the day I will pay off my mortgage. One major depressing thought is, as a renter, you’ll have to move a dozen times in your adult life due to stupid landlords and other annoyances. There are HUGE benefits to buying that go way beyond this article.
I’m a 70 y/o retired RN, and my husband is now 74, retired from his own IT business. We have no pension, but have retired with 401Ks and his SEP. We have owned our home for many years, now being 35 years. Our home on Aquidneck Island, Rhode Island has increased in value 4 times. You can do it. I applaud you for your comment.
Just a piece of advice. One should know if one is capable of buying a house. If you are going to buy a house and you still don’t have that sufficient income or source for the money then better to improve your money-making assets first before going for a house.