Buying your first home is a serious and exciting event. It takes patience, money and responsibility to be ready to buy a home, but buying the property is only half the battle. The transition between depending on a landlord and being your own landlord can be a shock!
And though home ownership has certain advantages, it’s not all fun and games. As you age, you will most likely start to feel pressure to buy a home from friends, family and the media. I’m here to tell you that it’s perfectly alright—perhaps even preferable—to wait. You should buy a home if:
- You want to be a home owner. (Not everybody does, and that’s OK.)
- You’re financially ready. (Meaning good credit, secure income and a 20 percent down payment.)
- You’re not going to move. (If you think you’ll change cities within five years, why bother buying?)
You should not, however, buy a home for the following reasons:
You Want The $8,000 Tax Credit
Buying a house just because of the new, albeit tempting, home buyer’s tax credit is like going out and adopting a baby just to claim the adoption credit. (The adoption credit is much higher than $8,000, I might add, so if you just want a tax credit, forget the home and go find a baby).
Uncle Sam waving an $8,000 check in your face may be enticing, but it doesn’t make you any more prepared for the responsibility of home ownership. Plus, Uncle Sam won’t be around when you need $5,000 for a new air conditioner. You’re probably better off saving more of your money now and waiting until you’re actually ready to buy a house.
You Just Graduated or Got a Job
Hooray, you got a degree! Maybe you’re even a doctor or a lawyer. You might even have a fancy first job all lined up. That’s great, but it doesn’t mean you should line up your first house just yet. (Unless, of course, you’re among the small percentage of twenty-somethings that come out of school with no student loan debt (or any other debt) and a well-padded savings account.)
If, however, you’re like most recent grads—especially those just out of college—you’re barely able to pay rent, let alone buy and maintain a household. If you just graduated, give yourself a couple years to find a solid job, build up your savings account, and pay off your debt. After you’ve gotten your finances in order, then you might consider buying a home. Doing so any sooner could be a decision you live to regret.
Someone Told You It’s A Good Investment
I have people tell me to buy a house all the time. They think I’m a lunatic for renting. “Renting is such a waste of money,” they say. (Even though they’re actually drowning in a mound of credit card debt because they’re “house poor”).
Yes, buying a house can be a wise investment if you’re ready. But if you’re not financially stable, a house can lead to being house poor and relying on credit card debt to cover ordinary living expenses. And the last I checked, credit card debt is a very bad investment.
To combat friends who tell you renting is a waste of money, think about all the people who bought homes a few years ago and now owe more than their homes are worth. Like any investment, real estate carries risks. And if you’re smart, you won’t take that risk until you’re ready.
Mortgage Rates Are Low
It’s true. Mortgage rates are as low as they’ve been in decades. Got good credit and 20 percent down? You could walk out of your local bank with a 30-year fixed mortgage for less than five percent. And if you’ve got good credit, 20 percent down, and you’re otherwise ready to buy a home, perhaps that’s what you should do. Mortgage rates will probably start climbing sharply later this year. But only if you’re ready. Again, don’t be tricked into buying a home just because mortgage rates are low.
All Your Friends Are Doing It
If you’re reading this or any other financial Websites, the chances are good that you’re the most financially savvy guy or gal in your group of friends. That said, why use them as an example for how to manage your finances?
It’s tough to play it smart when all of your friends are buying their own pads, but your patience will pay off in the long run. Right now, your friends will be busy maintaining their home and stretching each of their paychecks to make mortgage payments and repair leaky faucets. Why not enjoy being able to rely upon a landlord when the toilet overflows for now? You can focus instead on saving as much of your income as you can. When you have an emergency fund and a solid down payment that even Dave Ramsey would be proud of, you’ll be ready to buy a house without ever having to worry about whether you can really afford it.
You’ll be able to say “Hell yes I can afford it!”
The Moral Is: Don’t Rush
Buying a home isn’t a race. For the rest of your lifetime people, companies, stores and even the government will try to push incentives your way so that you’ll agree to buy something that you don’t need or before you’re really ready. If you are ready to buy a house, that’s great—go for it. (We’ll even help you figure out how much house you can afford or show you how to start getting mortgage quotes online).
But if you’re not ready, don’t jump into home ownership just yet. Enjoy today while saving for tomorrow. Trust me; you’ll be glad you waited.