Johnny and I find ourselves revisiting the buying vs. renting dilemma from time to time, and we’ve heard from some of you who are doing the same. Renting definitely has its perks, like not having to pay for a new dishwasher when ours suddenly breaks down. But Johnny and I would eventually like to be the reason a “Sold” sign goes up in a yard somewhere in this grand US of A. The trick is knowing when the time is right.
Johnny and I have compiled a little list of questions for ourselves, and when we can answer “Yes” to all of them, we’ll be ready to buy a home. I thought I’d share our list with all of you:
Do I have 20% to put toward a downpayment?
WHY: This is a number that Johnny and I feel comfortable with. If we can afford a 20% downpayment (and the monthly mortgage, of course), we’ll feel like our can-we-afford-it-o-meter is spot on. And if we put down 20%, we’ll also avoid paying private mortgage insurance (PMI). That said, 20% isn’t the magic number for everyone. If the interest rate and monthly payments are low, someone could put down 10% and be okay, too. As first-time home buyers, 20% will be more in our ballpark.
Will I be settled for at least the next 3 to 5 years?
WHY: Buying a home comes with a boatload of other expenses. And it would be difficult to turn a profit and build up equity if we moved just a year or two later. If we stay in a home for, say, five years, we’ll be able to get some decent equity up in there. We’ll also want to ensure that our cash flow is stable. The mortgage payments aren’t going anywhere, and so we’ll have to be certain our income isn’t either.
Am I otherwise debt free?
WHY: A home is a ginormous expense. And the expenses won’t stop once we buy the house, either. If our AC suddenly decides it’s not interested in keeping the house cool, we’ll have a hefty bill on our hands. Which would be very uncool. If at all possible, we’d like to have as few other monthly financial obligations as possible. Sometimes student loans, car loans, and other debts are the reality, and in those cases, it’s just important to make sure those are on the path to being paid off. Not having any other debt will also help us with securing a loan from the bank.
Do I have a six-month emergency fund in place?
WHY: Once we buy a home, we’re gonna go ahead and assume that what can go wrong, will go wrong. Emergencies will arise; appliances will break; sprinklers will go rogue. And an emergency fund won’t only be a nice cushion, it will also be a necessary cushion. The last thing we would want to have happen is to buy a house and then realize we can’t afford the unexpected problems that arise. And despite being *certain* we have a steady income before buying a home, nothing is certain. Fun, right? So an emergency fund would come in handy if we had any hiccups with our income as well. (Here’s how we calculated our emergency fund.)
Obviously, there are other considerations, such as the area where you buy, the current housing market, credit score, and so forth. No one really knows how the market will react over time, so buying is always a risk in a sense, especially if it’s not your forever home. But if we can answer “yes” to the questions above, chances are we’ll be a-okay. Everyone’s circumstances are different, and if you’re wanting to buy a house, you’ve gotta figure out what would make you feel ready. But if you can answer “yes” to the questions above, you may be ready, too :).
Any other questions/thoughts you’d add to this list? Any questions in general? Please share!
photo by LancerE