Asking the right questions is an important part of every financial decision you make, and homeownership is no exception. If you’ve been thinking about buying a place, preliminary research will turn up a long checklist of questions for you to ask at every part of the process. There are questions for your financial institution, questions for your mortgage broker and questions for your real estate agent. But what about the questions you should be asking yourself?
Owning a home is likely the largest financial commitment you’ll make in your life, and it’s easy to get caught up in details pertaining to debt-to-income ratios, the real estate market, current interest rates and amortization schedules. But financials are only a part of the picture. In order to make a truly smart decision, you need to acknowledge and accommodate some personal factors along with the financial ones. Asking yourself the following four questions will help you determine whether or not you’re ready to own a home.
1. Why do you want to own a home?
Seriously, why is owning a home important to you? (Don’t answer with what you think you should answer; be honest with yourself.) Are you looking to build equity? Does it just seem like something a “successful adult” needs to do? Do you see it as an investment? Do you think renting is somehow inferior to owning? Are you just fed up with your landlord? Do you see it as a symbol of your freedom and independence? Do you have a Pinterest board of home renovation ideas you’re dying to try? Do you think it’s something that everyone your age should do?
There’s no “right” answer to this question (even though some reasons might be more frivolous than others). Think carefully about the answers you give when you ask yourself these questions and you’ll get some insight into why you’re contemplating buying a home in the first place. Are your motivations fueled by practicality or insecurity? Is it something you want or simply something that everyone else seems to be doing? Figuring out exactly why you want to own a home is the first step in figuring out if home-ownership is right for you..
2. Are you okay with staying put?
To make the most out of buying a home, you need to be in it for the long haul (which usually means at least five to seven years). There’s a reason why short-term homeownership isn’t a thing outside of those real estate flipping TV shows; it’s a great way to lose a lot of money. Your home, like any investment, needs time in order for its value to grow. (And that growth isn’t guaranteed, by the way.) By selling your home after only a couple of years, you’re at the mercy of real estate market swings. Your home may not have increased in value enough to break even - especially when you factor in closing costs and other additional expenses that go along with buying/selling a home. If the thought of staying in one place for more than one year makes you feel panicky, then it might not be the right time for you to buy.
3. Are you happy?
Stability is key when it comes to buying a home, so anything that threatens your stability - like the fact that you just don't love your job or you can't stand that your community is too small for a Starbucks or Walmart - could also potentially cause some major headaches once you’ve signed those mortgage papers. Do you love what you do for a living? Do you have job security? Do you enjoy living in your neck of the woods? Is your personal life stable?
You don’t want to be in a situation where you purchase a home and then find yourself faced with the need to change things up. A career change, the start or end of a relationship, or a sudden onset of wanderlust could all interrupt your plans to stay put and build equity. Of course, life can be unexpected even when you are happy. But generally speaking, if you’re pleased with where you’re at at this point in your life, then dramatic changes won’t be looming around the corner.
4. Is your savings account up for the challenge?
Have you done your homework and figured out how much home you can afford? You'll need to consider lots of things - not just your monthly mortgage payment. Other expenses like property taxes, insurance, homeowners association fees, and utilities are just some of the added expenses that come with homeownership. You'll also need to save for expensive surprises like burst pipes or a leaky roof. Plan to save money each month that will help you to manage the financial responsibilities of maintaining a household, which includes everything from purchasing or replacing appliances and plumbing work to foundation problems or landscaping fees. Budget in savings for your emergency fund so that you can have some flexibility and continue to pay your monthly mortgage if you suddenly find yourself with health or job troubles. If you're already practicing healthy savings habits, you'll also want to consider budgeting for moving expenses, furniture, and any home upgrades that you might need when you finally purchase your new home.
On the surface, homeownership can seem like a smart and appealing option - especially if your mortgage payments work out to be lower than what you would be paying to rent. However, rushing into a mortgage can set you up for a ton of stress (financial and otherwise). Before you buy, check in with yourself to make sure that you’re well prepared, that the timing is right, and that you’re doing it for the right reasons!
