Homeownership has been fairly synonymous with the idea of the American Dream and most people seem to really seek it out, but the truth is that it isn’t for everyone. Increasing the percentage of homeowners has been a goal of many politicians on both sides which shows how important it has become in the eyes of most. This isn’t just speculation either, the perfect example of Real Estate being a nonpartisan issue is shown in the “American Dream Down Payment Fund” that passed Congress in 2002. This is one of the very few bills that was unanimously voted for. There aren’t many topics that receive that kind of support, but that still doesn’t make homeownership for everyone.
Here are the 3 things that should make you reconsider buying a home.
When it comes to buying a house one of the most important things to look at is how long you plan to be in that area. In most situations, unless you plan on staying for 3-5 years then buying isn’t for you. Before this time-frame there is a good chance that your home won’t appreciate enough to catch up to the closing costs and post-purchase expenses (like moving, furniture, ect.). It is important to realize that after buying a home you lose a lot of freedom to make decisions that wouldn’t be as significant without a mortgage and the time-frame that you plan on staying is a big one to consider.
Poor/no credit or a new job:
These two points are grouped together because they both have similar effects on your ability to buy and they both have straight forward plans to fix. It is obvious how credit score can affect your ability to buy, but when it comes to your work it could have a larger impact sometimes. This is because most mortgage lenders have 2 different ways of calculating your mortgage. The first comes into play when you are self-employed or have an hourly wage/commissions; this is calculated based on your average earnings over the last 24 months, so being in a new job greatly changes your qualifications. The second has less of an impact because when you make a salary they usually just look at your 2 most recent pay stubs. Both job history and credit issues can have a plan created to put on the right track though, they just both take time. Job history simply takes time without moving, and for credit advice there are tons of tips that you can find online. A good lender would also be able to help you out significantly, so don’t hesitate to reach out to one for advice. Over time we have worked with the good and the bad on this front, so feel free to use our list of the best mortgage lenders to find out more.
Whether you don’t make enough, have too much debt, or simply don’t have enough in savings; it is important to look at your economic situation objectively because for many people homeownership could be a trap. Most top financial advisers suggest that your housing doesn’t exceed 28% of your gross income, and if you are making a 15 or 30 year commitment then this is an extremely important. What people fail to see is that sometimes homeownership is a bit of a gamble, and those that live paycheck to paycheck can find themselves in serious financial trouble when the unexpected happens. When it comes to debt, most mortgage lenders only allow for 35-42% of your gross income to be debt and this includes your mortgage. The amount in savings is the last portion of your economic status and it obviously effects the down payment. This is where there are the most areas for help but that doesn’t mean it always makes sense to use it. While most people struggle to get the suggested 20% down and there are a number of programs that allow you to get down payment help, it is important to look at what your savings will be after not only the down payment but also moving and closing costs. It is important to look at where your savings will be after all expenses and not just the down payment and consider waiting if your accounts won’t have enough to cover a few months of expenses after the fact. Of course, if you are wanting to buy but one of these three things is suspect, then following a plan like Dave Ramsey’s 7 Baby Steps to Financial Peace is a great place to start.
Owning a home is something that most people have planned at some point, but it isn’t for everyone. This ability changes at different points in everyone’s life and it is important to look at your situation objectively because jumping in when you aren’t ready can be a trap. As we mentioned above, if you have your sights set on buying but one of the above has your worried then creating a plan to get past it is a great idea. If you fall into that category then there are a ton of resources that can be used to help plan and we are more than willing to help. If you have any questions about your ability to buy or setting up a plan so that you are ready then feel free to reach out to The CAZA Group and we will help you find the resources you need.