Business Insider recently came out with a flowchart on whether or not you’re financially ready to buy a house. And while I’ve never known anyone to make a decision off a diagram before, my older self could have greatly benefited from it :)
Here are the 9 questions it forces you to think about, along with how I would have answered them myself back in 2007 before picking up that fateful house… They’re actually pretty good questions!
#1. Do you plan on being in this home for five or more years?
What? No way – I love to move. 5 years is a lot!
#2. Do you have an emergency fund?
#3. By the time of purchase, will you have enough cash saved for a 20% down payment plus fees? 20% of…. $1,000? :)
#4. Are you saving for other major goals?
Well, we will be getting married in about a year and I don’t have any investments saved up yet, so…
#5. Will buying a home wipe out all your savings?
Nope! Because I’m financing it 100% – BOOM!
#6. Can your budget handle not only your mortgage but also the taxes, maintenance, and incidental costs on a monthly basis?
Surprisingly, yes. We both have solid jobs and I don’t foresee anything bad happening at all with the economy. It’s not like real estate prices would ever go down or I’d get laid off or my wife would go back to school leaving us without an income. That would be crazy!
#7. Do you have a credit score in the mid-600s or above?
We do! Believe it or not, we’re actually great at paying stuff on time and not racking up major debt.
#8. Have you lived in the area before?
No. First time here, actually – we made a wrong turn and got lost! (<– True story. We meant to rent an apartment and ended up buying a 3 level townhouse on a whim. Whoops.)
#9. Are you willing to be your own super (or pay someone else to do it)?
Sure, can’t be that bad, right? You just pay someone to come over and fix stuff every few years?
As you can see, I would have failed this test miserably :) 5 of our answers pointed directly to “rent” instead of “buy,” giving us 5 solid reasons to walk away and not pull the trigger.
But of course we did, and now here we are 9 years later still soaking up the lessons from it! You know, like never putting down $0.00 for a down payment, making sure to at least have something resembling a budget, and the ultimate whammy – never purchasing the biggest item of your life just because everyone says it’s a smart thing to do!
Fortunately, years later it did turn into a pretty smart move (it got this blog up and running which completely changed my life and my career and all of my friends! *Waves to all you fine people out there*), but double thinking things never hurt anyone before. In life or in money.
So if you know anyone thinking about picking up their first house, or you’re thinking of doing it yourself, please please PLEASE have them go through this flowchart first!
Here it is again: Buy a Home or Continue Renting?
I’d love to have seen more lifestyle questions in there, like “Are you moving closer or farther from all of your friends and family?” or “are you SURE you’re ready to “settle down” and give up some freedom?” but as far as financial exercises go, this is one of the best ones I’ve seen in a while.
Let me step down now though, and let some of you homeowners chime in… Seeing how I’m biased ;)
If you own a home right now, are you happy with the decision so far, or do you wish you would have changed something? If you went back in time and answered these 9 questions above, how would you have fared? And would it have mattered?
No right or wrong answers here, as always, but still good to keep it real with ourselves no matter how our decisions play out… And fortunately, rarely are things irreversible!
PS: For all new readers to the site, we ended up selling our house in January of this year and are now back to renting blissfully again… You never know what the future holds, but should we go down this path again you better believe we’ll be coming back to this checklist!
Get blog posts automatically emailed to you!
Those are some really good questions.
My boyfriend hates the stuff that comes with owning a house (paperwork stuff, and things breaking down), but still we are looking for our next house to own (and then we’ll also have to sell this one, sigh). There’s some deeply ingrained “renting bad, buying good” idea buried somewhere in his brain.
For me, I hate that when things break down, we’re the ones who have to get it fixed (costing time and/or money). I can deal with the paperwork.
I think for a lot of (young) people, renting is the better option, at least for a few years. Until you can get to the end of this flowchart without being directed towards “rent”…
Your boyfriend and I would get along well :)
We’ve been in our home for over 17 years, so buying was the right choice for us. We made some mistakes after the purchase taking on additional debt in the form of a 2nd mortgage.
It is always good to ask yourself some qualifying questions before any major purchase to make sure it’s the right fit. Answering these 9 questions might have triggered that we had no plan with our money. We have little savings and we not keeping a written budget at the time of our home purchase.
17 years – nice! I probably go through 5-6 houses in that same time frame, haha…
I’m really happy with my home purchase, but I was definitely just in the right place at the right time! I bought in East Nashville in 2009, the year of the $8,000 tax credit. It was right before Nashville got super popular. I bought it the neighborhood I could afford for $167K. Then, I refinanced to a 15-year loan a few years later. It’s great to have so much equity, but mostly I’m just grateful to have an affordable place it a walkable neighborhood. I’m not sure I’d be willing to pay the rents over here.
Oh wow – beautifully done! Love hearing stories like this because they give me hope for the future shall we ever get ready to settle down again :) Nashville is soooo pretty too – love the vibe there, esp with all that musical awesomeness.
I like owning my own home. It does come with responsibilities though, and while not always pleasant, I find to be a fine trade of for being in control (I have had landlord issues when I was renting years ago). I do have a tenth question to add to this list though:
Are you willing to not listen to your bank and your realtor tell you how much house you can afford and listen to your budget instead?
The banking world loves to tell you how much you can “afford.” As if they have to deal w/ all the payments going forward! :)
Not to mention they often sell your loan so they don’t have to worry about the missed payments if you default.
Yeah, it’s all a racket.
Of the 9 questions above the only one that I would have answered in favor of renting was number 8 because we bought a house across the country after flying out there and looking around for 3 days. We had intended to rent for at least the first year but couldn’t convince ourselves to spend $500 a month more to rent than to buy (and after 3 years we’ve still put less than $1,00 into repairs and maintenance). We love our house and the stability that it allows us. In the 6 years prior to buying this house I had lived in 16 different houses and I was ready to be settled and not have to wonder where I’d be living when the lease ran out each year.
Holy crap that’s a lot of moving! You’re putting me to shame! :) Glad it ended up working out for you though – esp with spending so little on maintenance, that’s incredible. Thanks for playing along today!
We failed that flowchart before buying our first house hands down. It worked out due to real estate prices rising steadily over the 2 years we lived there.
We were closer to passing on our second home (that we built) but only put 10% down.
We made big mistakes outside of financial decisions on our first – no central air with a second floor bedroom, single car garage (parking outside sucks in MN in the winter)
Sounds like you’re getting better at it as the years go by :)
Well well – this is eye opening! :)
I could answer all of them pointing to buy except #6 after the market got jacked. I was a realtor at the height of the market specializing as a first time buyers agent. I can honestly say 90% of my clients were not in a position to buy…but it’s hard to pass up 0% down financing!!! What a mess.
Though I was fully prepared to buy my live in property, I wish I had thought further when I decided to buy rentals as well. I definatley was not prepared for what would happen when the market turned and my tenants could no longer pay rent with the loss of their jobs. I assumed rents would go up (and eventually they did) but for awhile they dipped which left me at a negative each month on each property and eventually the loss of all 3 properties via short sales…despite being responsible having put 20% down on all of them! Doh!!! Not a good look for my credit score…
I would add #10 – If you were to move and rent out your unit, do you have enough to cover all expenses should have a multi month vacancy?? Uh – no.
Ouch indeed… Great question with the vacancy months too. We turned into accidental landlords ourselves, and while we were pretty solid for a good 2 and a half years, it did take a month to get rented out and then another couple of months of being empty to finally sell it in the end. I know real estate investors are pretty good about keeping all this in mind while they manage/build/budget for their empire, but us “normal” people usually aren’t. Especially if we never meant to own a rental property to begin with. So all good stuff to keep in mind!
Thanks for sharing those questions J! Before we bought out house this year we asked most of them and ran the numbers. For us, buying was the better option.
Doing our homework way before the house hunt really helped. While there have been some unexpected expenses with our fixer upper, it’s so far stayed within our house budget.
Limiting our hunt to only houses that one income could cover has been a blessing. It forced us to nail down what we need and truly want while still giving us some buffer in our budget.
Good!!! The worst is when realtors send you over to check out sexier houses outside of your budget to try and tempt you (or you do searches yourself for them, haha…). Takes some good willpower to play within the lines :)
Yes, I think a big help was our realtor was supportive of our goals for the house. She did a great job staying with our budget and negotiating a solid price on the new place. Win!
I like these questions a lot. But I think it’s so complicated, too. Most days, I hate our mortgage. But then other times, I’m really grateful for what our house gives us. Rent is pretty astronomical in our area, and we’re so close to work and family. Still, this really points to the fact that buying a home is about so much more than what the bank approves you for (don’t spend that, don’t spend that).
Totally… Lots of variables all around.
We would have passed this “test” when we bought our home 6 years ago and have not regretted it, but it took 3-4 years of planning, saving, house-searching, and soul-searching to get there. We crunched lots of numbers and realized that the home would not be an “investment.” It would be a place to live. The market here has been pretty flat but we’re very close to friends and family and that is worth a lot to us.
Smart move!!! You spent 1200 days more than we did picking the place ;)
“#8. Have you lived in the area before?”
I feel like this is one that a lot of people miss. How can you really answer number 1 (“Do you plan on being in this home for five or more years?”) if you don’t know for sure that you really like the area? Plus, as you pointed out, it matters whether you are moving closer to or farther from friends and family.
Thanks for the post!
Thanks for chiming in :)
I would have done well for the house we’re in now, but lousy for my first house. It turned out okay in the end (we’ve kept it at a rental) but that’s more due to luck than anything else.
Great questions. I like the one about staying at least several years in a place – otherwise it may not be worth it to even consider a house. I also like the one about fixing stuff – many like myself have two left hands, so it is possible that the house is not kept well ;-(
I think for me it all boils down to opportunity cost – if I believe I can make more money elsewhere, buying a house may not be worth it. But, if all other investments are overvalued, it may make sense to buy a home.
“#6. Can your budget handle not only your mortgage but also the taxes, maintenance, and incidental costs on a monthly basis?”
That one is huge IMO. Even if the other 9 questions point in favor of renting, buying usually wins out in the mind of first timers because those expenses are ignored. Rent is nothing more than throwing away money, and you’ll always come out ahead on the house… or something. I actually just published a blog post about how it’s possible to lose money even on a house that doubles in value, because of those little forgotten expenses.
I believe it! People are always comparing the wrong #’s together – and I was def. one of them back then :( Plenty of ways to make more money in an investment than a house.
Buying is great if you purchase something and never move and also want the feeling of being settled.
20% down, I wish I had done that…but I wasn’t as far along in my journey or knowledge of FI at that point in my life. I was talked into buying max house and taking an FHA loan, which, while it had a great interest rate came with 60 months (or 22% paid off whichever comes last) of mandatory mortgage insurance. 19 months remaining… but the ray of sunshine is that I have used it as a catalyst to get 22% paid off in the first 60 months. Not only will this have the benefit of getting rid of MI but also will shorten my pay back period for the loan by several years and effectively reduce the interest owed to the bank by the amount I have put in.
Having to pay MI is a huge kick in the nuts every month but it is the one thing that got me to take FI seriously so something positive definitely came out of it.
Amen, brotha… Sometimes we gotta learn the hard way.
I have owned a home since I was 20 years old. My first home was with my first husband and it cost $187.00 per month for 30 years. It was way cheaper than rent for the size of the house. It took about 8 years to get it the way we wanted refinanced it with the new kitchen, new bath, siding, carpet and the payment went up to $525 for 15 years. We refinanced in September divorced a year later. I kept the house with my 2 children and it was cheaper than rent still. It also gave the kids a steady location (Dad has 8 house the next 5 years). That house I kept and when I remarried some 9 years later…I pocketed $25K. That $25K helped get the kids educated. On my second house now and 11 more years and it is paid for…right in time for retirement…now I am thinking in maybe I don’t want to owe a home at retirement. You still need to carry insurance, pay taxes and do up keep. Thinking I might take that free and clear money and invest to down size and have no responsibilities :)
Oooh la la – now you’re talking my language! ;)
I think a majority of first-time home buyers would fare similarly in answering these questions, to be honest. Like I was at the time, first timers are blinded by optimism and excitement and generally don’t want to answer the tough questions.
Many first timers are overwhelmed by the thought of a 20% down payment due to the mountain of debt they face. In the end, I think many first timers default to following the advice of others, which is pretty terrifying, IMO.
We were fortunate to have a great MLO who worked his magic and got us in a great first-time buyer program. To this day I cannot believe it, but we actually received a check for almost $2,000 at closing rather than writing one ourselves. I remember sitting there and for a moment thinking, “Did I just get paid to buy a house?” Some quick mental math erased that momentary thought.
Hahaha… that’s pretty impressive! Never heard of that one before :)
100% financing sounds crazy now.
I’m glad it worked out for you. I think a house is a great way to build wealth, but you have to be careful about not buying too much. If you can’t afford it, then keep renting. Good questions.
We put 20% down on our first house and it worked out quite well. I also did a 15 years fixed mortgage. We would have own that house now if we stuck with it. Oh well, life goes on.
We are on our 4th home – the 4th one was a solid decision and one we’re happy and comfortable with (even with a mortgage) but, on the first 3, we made many mistakes. We should have rented about 10 years longer than we did. But, if we would have used those 9 questions back then, I honestly think we would have ignored the answers and done it anyway. There’s always an angle for rationalizing these decisions. Live and learn.
Yeah, that’s the trouble with all advice really – whether good advice or not. When you really want something bad enough you’ll end up doing it anyways :) But hopefully we come across this stuffy AHEAD of time before those decisions are made so it helps direct us better at least!
Ha, love this. We were not very smart when we bought our first house, but thankfully everything ended up working out.
I love the flow chart, but hesitate to send it to my younger sister. I mean, who, at least when starting out, can possibly avoid saying ‘no’ to some of those questions?
Maybe that’s the rub: most young people really are better of renting.
Much harder to save 20% too when first starting out :(
I think in most parts of America renting is better than buying, especially given the opportunity cost- you can use the money to invest in index funds which have a higher rate of return.
But this is not necessarily true in the San Francisco Bay Area where I live. I have been debating about buying v. renting for a while. Given that a few big late-stage tech companies will likely go public in a few years, I think I might end up buying.
Agreed! Renting can open up so much $$$ to invest and build that wealth faster depending on where you live and how you do it. Provided you DO actually do it, haha… The part many forget ;)
You poor thing! Yeah, those are good questions. Sorry you learned the hard way, but I am so glad to have been able to “meet” you because of it!
I just answered those 9 questions in the mindset of my husband and me in 2007 (when we bought our first house at age 24) and 2012 (when we had this one built and bought it at age 29-30). Apparently we were CREATED for home ownership, LOL.
#1 – In 2007, we thought we’d live there forever. Stayed 5.5 years. In 2012, we thought we’d be here for at least 30 years. So far, so good.
#2 – Yes on the emergency fund both times. In 2007, it was around $5000. In 2012, it was around $20,000-$25,000. I’ll admit that we lived pretty cheaply for the 2-3 years after graduating from college just because of this part…like I’d get mad at hubby if he splurged on lunch out without it being budgeted in advance. Haven’t been that budget Nazi for about 8 years…
#3 – Yes, we had the 20% down payment plus other closing costs put aside separately from our emergency fund both times. We live in the suburbs of Houston, TX where property is pretty cheap. $114,000 for the first house (1750 sq. ft.) and $261,000 for the second one (3750 sq. ft.).
#4 – Yes, we did have other savings goals both times. We always have side accounts to save for new car funds and car maintenance as well as retirement accounts that are fully funded every year.
#5 – Nope, we did not completely wipe out our savings either time. We got close-ish on the first one but had that $5000 padding. Not close on the second one.
#6 – Yes, our budget could handle all of the costs PLUS lawn care, because we always have known that we will not mow or edge our yards…we’re spoiled…
#7 – Yeah – our credit scored were in the mid-high 700’s in 2007. Low 800’s in 2012.
#8 – Okay, so we sort of had lived in the area in 2007. It was 20 minutes away from our apartment but we were part owners of a business in the area of our house-to-be for about 3 months and loved the area (pretty much lived out of the game store every minute we could). That business failed thanks to the original owners about 3 months after we bought our house…lost us about $12,000 overall. In 2012, we stayed in the same general area. We are 5 miles down the road from our first home, our paid off rental house now.
#9 – Yes, we can fix our own stuff or hire people to do it. We do.
Okay, so I’m not extremely surprised. I’m a suburban girl at heart who always knew she wanted to own a home and settle down in one area forever…specifically an area close to grocery stores, restaurants, and service places we use. I like never having to leave a 5 mile radius from my home. :-) We travel 3-4 times a year and that’s perfect for me. :-)
Love it! Y’all really are made for home ownership! I actually hired someone to mow our lawn for the first time at our old place this summer, and I’ll admit it felt good :) Especially w/ the edging as I never even knew that was “a thing” until I started looking at other yards and saw how nice it looked! I’m back to mowing my own lawns again now that I have a working lawnmower – hah – but I did learn a few tips from the guy we had hired so in a way it was kinda like an investment? ;)
Great questions! I’ve rented and I’ve owned homes before, and for my current home (owned for 9 yrs) the answers would all point toward buying. Even before my first house, almost all my answers pointed in that direction. But you make good points about being near family and other considerations. The only thing I’d have done differently about my current home is that I would have waited longer for the prices to drop before buying. Hindsight is 20-20, but overall I’m happy where I am.
Yeah, the timing stuff you don’t have much control over so I’d say you did a damn good job with it :)
Our home purchase was a great decision BUT some of the things we did in the renovations were not! Those are great questions – and along with the decision framework I use (that’s why I started the blog…) it would really help in making a smart decision about rent or buy.
All great questions to ask! I think number 6 is one a lot of people may overlook. Taxes, maintenance, and incidental costs can easily add up. Thanks for the list J$!
I just made my first big purchase on a property and I am glad that I did not fail any of those questions. I will keep this list in mind and will pass it along to my friends who are interested in buying a home to consider. :) Excellent questions!
Congrats on being smart!!
I wish to buy or to rent was an actual choice for my family. It is so expensive where we live that a regular person just can’t buy. I don’t mind renting philosophically, but I wish I could make my apartment truly my own. I love it enough to not want to leave though. I do think that feeling home is the key. And considering my husband and I are barely a step above college students as far as having the slightest inkling about how to care for a house… it is possibly for the best.
Oh yeah – feeling like it’s “home” is def. important! I used to want to change all sorts of things with houses (paint, shelving, knock down walls) but now it only takes some rearranging of furniture and some pictures to make me feel homey :) Which fortunately is easy to do whether renting or owning.
We rented for 10 years before buying our first house, and LOVED it. It helped us save so much cash. We moved back to Montana and paid cash for a house. I really like owning too. (so much so, that we bought a few rentals). The numbers worked out great for us, which is a big plus. But I also like the creative side. We gutted the whole house and yard and remodeled it. It’s fun to live in something that we created. I haven’t entirely ruled out the option of building one of these things from scratch. =)
Oh mannn I bet!!! And I’d imagine that once you get a good transaction under your belt it’s much easier to keep going and growing that empire too. Love that you paid all cash for your Montana house :)
I’ve never considered to ask questions to either rent or buy. I always just wanted to buy (renting right now as I just graduated college) to get some rental income and for the most part, real estate value usually increases depending on location. Thanks for putting it together, J$, I’m planning on owning a property in the next 5 years to get some nice rental income coming in but I can only hope.. Have to educate myself immensely first!
You’d be much smarter than me going that route! Hard to make good quality decisions without soaking up some knowledge first :)
Good questions to ask. I’m very happy with my 2014 fixer purchase. Just busted open the master bedroom wall to install sliding doors to step out on a balcony!
I like doing things…. and creating. So creating something from nothing with the house remodel/expansion has been an overall rewarding experience.
Practice taking profits in the market to spend on a better life! Otherwise, what’s the point in investing?
I still need to come out there and check out that pimp closet of yours :)
One of the first questions I asked my realtor was if people rent in the area. Last year I had job offers on the same day in 2 different states. I really like my current job and plan to stay for 5-ish years but I have no control over larger business decisions. I have worked in this industry long enough to know things change, even if you like the job. If the next job is in a different state, I wanted to know I could rent this and not stress about moving + selling + starting a new job.
I had 20% down, & didn’t let the upper loan limit influence me. I lived a bit north of here, and decided I wanted to stay in this county, not too far from the yoga studio and the downtown that has a lot to offer. Yes to the credit score and emergency fund. I can fix most minor things, or judge when to call a professional.
Rent went up with each lease renewal, I try to keep my budget pared down, funneling the rest into savings, meaning I was going to start tapping into my monthly saving ability. I wanted to feel settled with a house for a while now. I was also quickly burning out on the commute, but rent closer to work was $200, $300 more than what I had been paying (plus the county considerations). Homes closer to work are out of my budget. The closer to a major city the more expensive the residence even if you aren’t working in the city.
I am quite happy with how it all worked out. The shorter commute gets me on these gorgeous back roads almost designed for windows down cruising. The design / layout isn’t my ideal (some of the light switch placement baffles me) so it gives me ideas to design something more ‘me’ for FI.
Glad you’re happy with how it’s worked out :) Would be awesome if it gets better with each move up to FI!
We’ve been in our house for 10 years now, our fourth actually, and are very happy. We know we want to stay here for at least another 8, so it made good financial sense for us. We also met all of the “flowchart” criteria above when we first purchased.
I’m looking forward to having it paid off and have a plan to be mortgage free in eight years as well. Then it will be “rent free” living for a while! (just property taxes, insurance, and upkeep)
I’ve been renting in the area since 2008, but I was in grad school when I arrived. If I had saved better when I started earning reasonable money in 2012, I could have perhaps purchased, but I had no idea that I would start a business and thus tie myself to the area. My career has failed to launch in a secure way, and that makes taking on huge debt a very risky endeavor.
Agreed! Esp in these early phases of businesses… Just wait a few years when you hit the millions and can pick one up in all cash ;)
I pretty much agree with all your questions, but I would also add at least one about the housing market in general. For example: Is the housing market in the area you are looking obviously overly inflated and due for a correction?
Yeah, if you have the luxury of waiting (and/or patience) then that’s def. another one to consider. Though just like the stock market you never really know when things will blow up in either direction :(
This is a great list, and had we used it before we bought our house, we wouldn’t learned that we weren’t quite ready, yet. That was seven years ago, and we’re in much better shape now. But the cost of upkeep is definitely still a frustratingly big nut to crack some years…
In 2002, my husband and I purchased a 2/2 home built in 1990 on 7 acres in rural WI using his VA home loan- no $ down. It was a bank-owned property and in 2002 it was $86k; we had a 30-year fixed mortgage at 6%. We were a newly married, fresh out of the military and had only looked at one other house (next door to his parents). I had planned on renting for awhile as we had in Green Bay. It is dumb-luck or divine intervention that things ended up working out so well in this house despite our having zero knowledge of what we wanted or what we should be looking for. The only thing we agreed on was that it needed an attached garage.(Guess what we don’t have). I read a lot of buy vs rent posts on other blogs and I’ve never seen mentioned a couple things that now I’ve found have been crucial to our success here. First off, we got a mortgage with no pre-payment penalty- not that we knew what that was at the time, or even asked for it. Dumb luck. I had no idea some homeowners didn’t have the luxury of throwing every spare penny at their mortgage to pay it off early. We paid the mortgage off in 8 years, our first-born was not yet two years old. Next, our home was not within the boundaries of a subdivision. Again, dumb luck- we didn’t open a plat book until the after we’d bought. I didn’t know rural communities have subdivisions and I imagine some of my neighbors don’t either. But this very important stipulation allowed for us to build my husband’s business on the highway facing side of our property a few years after purchase. With county approval (simple process) it was zoned commercial-something we couldn’t have done if we lived in the house next door. Being self-employed allowed the flexibility required to avoid daycare, not to mention the shortest commute possible. Also, I can have chickens if I want (seriously, $4 a dozen for fresh eggs at our local market) or dozens of other side-hussles if we choose. Additionally, without meaning to, we bought a newer-built ranch-style home that is nearly handicapped-accessible, meaning, we could stay here a long, long time. With the exception of the washer/dryer (which we could have space for on the main level) and the fuse box, everything is on one level, including two full baths. Older homes with more “character” may have multiple flights of stairs, narrow hallways, and second story bathrooms which become unusable in the event of a disability. Of course, most young people are not looking for these attributes with their first home but in my line of work I’ve seen families struggle to keep their parents or disabled siblings or children in their homes due to the layout. I would recommend taking these features into consideration, especially if you are a veteran, or plan to spend lots of time with parents/grandparents. Finally, our property line runs adjacent to the ATV trail, and the boat landing is less than a mile. Since I’m not originally from this area, I didn’t realize what a blessing (or curse) this could be. Take into consideration how far you would have to travel for the activities you love most. If you love to snowmobile, check if local ordinances require you to trailer your sleds within city limits of the house you want to buy. (Conversely, if you don’t want to wake up in the middle of the night to BRAAAAPPPPP outside your bedroom window- don’t buy adjacent to the trails!) Also, if you are into toys, do you have the space to store them? Your HOA or subdivision may have something to say about the pontoon in your driveway.
Not that this house has all the answers. Forget all this hype over finished “man-caves.” A finished basement will add little to the overall value of your home unless it is exposed or has egress. While we have 3 additional bedrooms in the house, we could still only ever sell it as a two/two because they are non-conforming in the basement. Right now our two kids (boy/girl) share a room on the main level and at their age its not an issue, but I see how a 3rd bedroom on the main level would be preferable than 3 in the basement. Also, the acreage. You get taxed on all of the acreage regardless of how much of it you actually utilize. A bulk of our acreage is low-lying along the highway side or behind the house separated by a fence. And I’ve learned no amount of acreage can prevent a complete jerk-off from building directly across the road from your driveway. So don’t go looking for acreage because you don’t want neighbors. I know rural living isn’t for everyone. We’ve made numerous improvements to the house ourselves; or with the help of family and friends willing to work for beer and steak dinners. While we didn’t go into buying this house with much of a plan, over the years it’s been integral to how we live, work, and play- making it more of a homestead than just a house.
This is so fascinating (and helpful!) to read! I had noooo idea bout subdivisions until reading this, nor did I ever think about one-level homes and disabilities/etc (or snowmobile paths for that matter, haha….) Such great insight, thx for taking the time to brain dump on us :) And really just glad that it all ended up working out for you guys. Congrats on getting it paid off so fast! I’d be surprised if these days there IS a prepayment penalty, but with banks you never know so good reminder to double check on that for sure. Thx for stopping by!
Fascinating lessons learned, and how you have arranged your life!
I bought my house 15 years ago, and have to say it was the single best financial decision I’ve ever made (that said, I do agree that homeownership isn’t for everyone, or right for all phases of adult life). The reason my homeownership journey has been so successful is because I received guidance from people who knew far more than I.
Before I began working for HomeFree-USA (www.homefreeusa.org) I was a member, so I received hands on guidance about whether it’s the right time to buy a home, what I was looking for, my affordability, etc. Plus, I was double fortunate that my dad knew the local real estate well, and pointed me towards a neighborhood that he felt was going to explode in value (he was so right). Value increase was not my primary reason for buying this particular house though, I just wanted to be in this neighborhood and could afford it.
Regarding the Business Insider article, as someone whose organization primarily focuses on developing successful, sustainable homeowners, I actually don’t agree with all of their points. It’s great if you have 20% to put down, but that’s not a determining factor in whether you can afford a home (personally, I didn’t put anything down. I don’t recommend that for everyone, but I’m using myself as one of many examples of people who put little to no money down and have still been able to successfully maintain a home). Few to none of HomeFree-USA’s clients have enough money saved for a 20% downpayment, however we’ve been in business for 21 years and have a 0 foreclosure rate. That’s telling.
2) Having a full emergency fund is wonderful (and extremely important) but again, should not be considered a homeownership deal breaker.
And finally, the credit question is slightly misleading. We regularly work with people with credit scores below 650, however they would be able to afford their mortgage and be a sustainable homeowner (there are a myriad of reasons that their credit report doesn’t accurately reflect their ability to repay). The problem is, even if we can prove to a mortgage underwriter that the borrower will be able to repay the loan, the products that many banks are offering require a minimum credit score of 680 (they’d prefer to see in the mid-700’s, which is practically unreasonable for many Americans). The mid-600’s question is misleading because, even if you do have that score and answer yes to all of the above questions, many lenders would still not loan you the money. FHA allows for credit scores as low as 580, but many lenders won’t offer it to their customers.
Nonprofit homeownership education and financial organizations like HomeFree-USA are key to determining if someone is truly ready for homeownership (because again, many people are not. To flip it, there are people who will answer correctly on all of BI’s questions and still not be mentally ready for homeownership). We are mortgage industry experts who regularly talk to lenders, the GSEs and regulators, and explain to them what’s really going on with potential homebuyers. Likewise, we meet with clients every day and break down why now may or may not be the time to buy. We do not benefit financially by the size of the house someone buys as lenders or realtors do, we win by delivering mortgage ready, sustainable homebuyers.
Sorry for the long response, but as you can see I’m very passionate about this topic:)
I love how passionate you are! It sounds like your organization helps out a lot of people, and I could have greatly benefited from it myself all those years ago :)
I’ll agree it’s a “perfect world” to check off all the items on this list, but you def. can’t go wrong necessarily checking off at least a bulk of them. I think what matters most is that you’re *consciously* going through the different variables and making the decision for yourself whether home ownership is right for you (and esp at that given time in your life). It seems like a lot of people have blindly came out of it okay from the comments here – unlike myself, hah! – but ultimately the more prepared you can be the better. And I’ll agree – not many can check off all those items at least in their youth :)
It all comes down to #9 for me (mostly) and my husband: neither of us wants the cost or the responsibility of fixing #(*$ when it breaks! Just tonight we were trying to shim up bookshelves and bolt them to the wall in our (rented) apartment to make them safer and more stable, and that pretty much maxed out our collective handiness… for the year! We love not being the responsible party if the dishwasher, fridge, or washing machine breaks.
Of course, we’re also in the DC metro area, so J Money already knows all about the COST issue as well. ;) I honestly don’t know how so many of our friends are affording to buy townhouses and houses in this area. But even if we felt like we had plenty of money to make that decision ourselves, we still wouldn’t want the responsibility.
I always joke that I can only truly afford a *door* in the DC market, not a full house, haha… It’s amazing what people are okay paying for!