Home ownership has long been the American dream. Owning your home makes for a sense of security that just isn’t possible when you rent. As a renter you’re always at your landlord’s mercy. We know of one woman that rented a condo with a year-long lease, moved in, got settled and then five months later was told by her landlord that he was selling the unit and she would have to move. When you own your home there’s no landlord to please, no danger of getting kicked out and if you poke some holes in the wall to hang pictures, so what? It’s your wall.
You’ve saved money, you’re close to having enough for a down payment and feel you’re ready to take the plunge. As great as that might feel there are some things you need to ask yourself before you make that big purchase and here are seven of them.
How are my finances?
What this means is that you need to take a good look at your spending history. A first step towards this would be to pull your credit reports and check to make sure there are no ancient bills or erroneous items pulling down your score. You can get your credit reports from the three credit reporting bureaus – Experian, Equifax and TransUnion – or on the website www.annualcreditreport.com. If you don’t already have your credit score you need to also get it from a site like Credit Karma or CreditSesame or from one of the credit-reporting bureaus.
Second, go over your receipts from the past year and look for more egregious expenses such as eating out a lot or that week-long vacation in Cozumel that might make it difficult for you to save enough for a 20% down payment.
Third, take a really hard look at your credit card spending. If you find that it exceeds your earnings, you need to get it under control. Then don’t get any new credit for at least a year before you buy a home.
What’s my social life?
Do you enjoy spending your evenings at home watching a movie or entertaining? Do you like to cook for your friends or do you order takeout? Before you buy a house your social activities need to play a big role in the choice you make. If you like to have your friends together at home, put a bigger emphasis on the common areas and kitchen set up. On the other hand, if you spend a lot of time away from your house or apartment you might want to put less emphasis on your kitchen and look for a house with bigger bedrooms.
What’s happening with my career?
Before you buy a house it’s important to consider whether you feel settled in your career or what you’d really like to do is ditch your current job and sign up with the Culinary Institute of America. You may have budgeted for a mortgage that you can afford now but what would happen if your paycheck changes drastically in the next few years or disappears altogether? Of course, you can’t plan for everything that might happen in the future but especially if you check the box marked “Single” on your W-2 you need to think seriously about how stable is that paycheck.
Do I want to travel?
When you read about a guy who sold all of his earthly possessions so he could bike through Africa do you feel insanely jealous or just admire him? While your home won’t necessarily dictate your life for the next 18 or so years the job of selling one is just not as easy as breaking a lease. So, if you’re the type of person who would like to be able to get away occasionally for several months at a time, you might hold off on committing to a 30-year mortgage.
If you think that the cost of owning a home ends when you make your monthly payments, think again. It just costs a heck of a lot to maintain a house. In fact, one of the biggest sticker shocks that hits new homeowners is when they realize there’s no landlord or super to fix that leaking toilet, replace that broken hot water heater or patch your driveway. This means it’s important that you think about how much home maintenance work you can get free by doing it yourself. Can you repair a broken faucet? Swap out a ceiling fan? Rebuild a deck? There’s no shame in not being very handy when it comes to these types of things but if you plan on outsourcing them it’s important to take this into consideration when building your budget.
What’s my five-year plan?
Do you plan to have your significant other move in? Are kids in your future? Is your dream to foster rescue dogs? When you house shop it’s important to think about the life you want in the future as well as the one you now have. While it’s always possible to upgrade by moving to a home with a yard or a nursery don’t assume that it will be easy if your circumstances change. If 2007 taught us anything it’s that when the real estate market is dead or volatile selling your home and buying a new one can be tough.
Who are my friends?
Whether you’ve thought of it this way or not your friends play a big part in how you spend your money. Are you hanging with a crowd where you feel pressured to live beyond your means? Has Sunday brunch become a stressful weekly expense? Are you taking cabs home after a night of dining out because your friends insist? Do you dress to impress? We wouldn’t suggest you ditch your prosperous friends but if they’re keeping you from that dream purchase because you’re having a hard time saving that 20% down payment you’ll either need to learn to say, “no,” or get a new posse.
While the idea of owning your home can be incredibly appealing don’t rush into things until you’ve asked and answered these questions. If not, you could end up seeing that American dream turn into a living nightmare.