As some of you know, my fella and I are saving for a house. I know, look at me acting all adultish, right? Frankly, it blows my mind.
But seriously, it has been a steep learning curve. There are things we have to consider and plan for that I hadn’t even thought of. It’s just plain stressful and confusing.
Luckily, we are definitely making progress towards this ultimate goal and I feel confident in our decision to move forward sooner than later. That being said, how do you really know when you are ready to buy a home?
Again, while I have yet to take this ultimate, scary plunge into the deep, dark abyss that is home ownership, I have put a lot of thought and research into the whole process. Here is what I have learned…..
If you are currently locked into a lease, you will need to be strategic about when you purchase a home. You don’t want to be stuck paying rent or a huge penalty just because you fell in love with a house prior to your lease being up. In fact, I don’t recommend even starting to look for homes until you’re close to your lease being up.
Once that time grows closer, consider chatting with your landlord about options. Can you pay month to month after your lease is up? Will they allow you to find a subleaser? Stuff like that. Nevertheless, I’d still recommend budgeting for at least one month of overlap rent.
If you have any inkling that you will want or need to move within 5 years of purchasing a home, you may want to reconsider. Buying a home is an expensive and stressful endeavor. Not only will you be responsible for closing costs, but generally the first few years of your mortgage are mostly devoted to paying interest. Only after about 5 years will you actually start making enough of a dent on your principle to make a profit. Of course, every market is different and you might make major equity in only a year, but 5 years is a good rule of thumb.
You will also want to consider capital gains. If you sell your home within two years of purchasing, you can lose out big time in taxes. You can read more here.
If you have major debt, just say no to house-buying until that is more under control. Remember, a mortgage is a debt – and a big one – and if something happens to your income, you could potentially lose everything to default, foreclosure, or even bankruptcy.
Seriously, folks, if y’all can’t afford a fixed mortgage, step away from the house and run. Investopedia says it perfectly:
The main advantage of a fixed-rate loan is that the borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise.
An adjustable-rate mortgage (ARM), on the other hand, changes with the market. So while you may initially get a lower rate, eventually the interest rate will surpass the going rate for fixed-rate loans. My friend Emmy had her mortgage go up 25% in one year because she got sucked into an ARM. Plus, if you want to switch to a fixed-rate, you’ll have to deal with closing costs again. Ouch.
Here’s the thing: I know renting can totally blow. You want to make something of your own while also building equity and avoiding ass-ish neighbors and landlords. I get that. But you need to remember what else comes with home ownership: upkeep.
Even if you purchase a home or condo with an HSA, you will still be responsible for the leaky faucet, shattered window, or broken washing machine. You’ll also need to perform regular maintenance on your home and appliances to keep them running at tip-top shape. This all equals money and if you aren’t prepared for that, it can really, really suck. Like “I maxed out a high-interest credit card because I wasn’t prepared” suck.
If you’re considering purchasing a home with a spouse, partner, or even a friend or family member, you will absolutely want to make sure that your relationship with that person is rock solid. Just like having a baby won’t save a precarious relationship, neither will buying a home. So, for the love of Pete and his dragon, only purchase a home with someone you trust with your life. Dramatic as it sounds, too much is at stake.
I certainly hope this helps give you a clearer picture of how to know when you are ready to buy a home. Stay tuned for our next house-buying post, How to Qualify for the Best Mortgage Possible, to learn more about the specific financial qualifications of purchasing a home.