Should You Buy a House Now, Later… or Never?
In many affluent countries, buying one’s first house is a mark of success, a symbol that one has “arrived” or at least is on the way up. But with house prices on the rise, and wages for the most part remaining stagnant in a global economy that hasn’t fully recovered from the Great Recession, the dream of homeownership has become ever more elusive for many. If you’re one of these people you may be feeling pretty frustrated, and perhaps you could use some encouragement. If so, read on.
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A contrarian view: the case against home ownership (at least when you’re young)
First off, consider the possibility that you would be better off if you never bought a house, and invested in yourself or in something that would generate cash, rather than a house. Before you dismiss this as crazy talk (or an expression of sour grapes from someone who couldn’t qualify for a mortgage), hear us out.
Sixty or seventy years ago, homeownership was at the core of realizing a dream of financial security. It made perfect sense at the time, since another facet of that dream was the knowledge that if you got a well-paying job and performed well, you would be able to remain with the same company for your entire career. As your income steadily increased while your mortgage payments remained the same, your financial condition and quality of life would improve, year after year.
Unfortunately, the business world became increasingly competitive, a situation made even more extreme during recessions, most notably, the “big one” that hit in 2008. Such major course changes resulted in even excellent employees being valued only for how effectively they were able to increase the business’ competitiveness in the market. Loyalty, both toward and by employees, rapidly became a quaint anachronism. Longtime, trusted employees were let go without notice, with their positions either eliminated or filled by hungry young workers who were more than willing to be paid a fraction of what the people they replaced had made. Businesses moved on, leaving employees – who typically lived paycheck to paycheck with little in the way of tangible wealth and tied to a monthly mortgage payment and the seemingly unending collateral expenses incurred with homeownership – facing financial ruin.
And in such a fluid environment, it can be argued that stability and equity have in many instances been supplanted by mobility and liquid assets, and the dream of home ownership has been replaced in great part by the benefits of renting.
So putting off buying a home, perhaps indefinitely, isn’t necessarily a negative thing. But what if you have your heart set on a place of your own? We can’t say we blame you there. However, you still need to be realistic.
If you just don’t want to give up on that dream…
Even if owning a home falls short of providing the benefits it once did, many people, for many reasons, are unwilling to give up on the dream of homeownership. For those with the willingness to make a commitment, owning a house can still be a path to comfort and security. However, there are several important factors to take into consideration before making the decision to go ahead and buy a house. Here are a few things you need to consider.
Your current financial condition – Do you have enough cash saved for the down payment and any fees and closing costs? If you don’t, your monthly payments will be higher, and you’ll likely have to purchase private mortgage insurance, which does nothing to protect you, but does provide your lender with some protection should you be unable to meet your mortgage payments. Don’t just assume that you can afford those payments, either, especially when you add the property taxes and insurance payments for which you’ll also be responsible.
Your future financial condition – Are you reasonably certain that your job is secure, and that any other sources of income you might have will continue uninterrupted? And if something does happen that causes your income to drop, be it the loss of a job or being incapacitated, do you have enough cash in reserve to cover your bills until you are once again capable of working or you find another job?
Your credit standing – Is your credit score good, or do you need to pay down your debts and / or clean up any errors on your report? If your credit score is less than ideal, you will pay a significantly higher interest rate on your mortgage, if you can qualify for the loan at all. Putting off the purchase until your credit score is better could save you enough in interest to more than offset the increase in house prices while you’re getting your credit in order.
Your intent to stay in the house for an extended period – There are a lot of up-front expenses involved in both buying and selling a house, including appraisals, necessary repairs, closing costs, and agent commissions. If you aren’t certain that you will stay in the house long enough for the equity you build to more than offset these costs, buying a home will be a money-losing proposition for you.
There are, of course, many other elements to weigh when making your decision, the state of the real estate market being one of the more important. Look how many people bought just prior to 2007, while the market was hot, only to see the value of their house plummet well below what they owed on it. Many of them lost their homes, in addition to a significant amount of money, and saw their credit scores plummet just like the home’s value. And if you’re a busy millennial focusing upon a career or an older person looking forward to slowing down a bit, you might not be prepared, physically, financially, or emotionally to devote the time required by even basic maintenance such as yard work.
All these things – and, in reality, many more – need to be considered objectively and honestly before you commit to buying a home, so that it doesn’t feel more like a dungeon than your castle.
All mortgages are not created equal
After you have weighed all the pros and cons, and have decided that you are prepared for and ready to take on the joys and responsibilities of owning a home, your first step shouldn’t be to go house hunting. Instead, you should shop around and familiarize yourself with the many available lenders and the terms and conditions that each one sets for their loans. And by shopping around, we don’t mean comparing what each lender publishes in their brochures, says in their advertisements, or posts to their websites. Instead, find a reliable independent source that lets you compare the different lenders’ products side by side, and preferably one that accepts reviews of the lenders from people who have done business with them previously.
Don’t be put off by the occasional less-than-glowing review, as no business can satisfy all the people, all the time. But do look for patterns that indicate recurring problems and complaints. Readies not only provides such comparisons and reviews, they also offer money-saving tips for prospective homebuyers as well as homeowners, as well as advice on how to optimize your finances and improve your credit score.
So, is homeownership in your future, now or down the road somewhat, or are you more comfortable renting and putting those homeowner energies elsewhere? There is clearly no right or wrong answer, so long as you know what you’re getting into, and are clear about your ability and willingness to accept the pros and cons of whichever you decide to do.
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