Things to consider before buying a home
Ask yourself:
- Can I afford to buy a house without financing?
- If I can’t afford to buy a house without financing, would I mind living in a house or my desired neighborhood for 15, 25 or 30 years (the probable length of your mortgage)?
- If I have to move, and can’t sell the house, would it be possible to rent the house for enough money to cover the monthly payment? Would I be comfortable with being a landlord?
- Can I afford to cover my monthly PITI payment (principal, interest, taxes and insurance), plus an extra $300 – $500 (or more) per month in utilities, home owners association fees, and maintenance?*
- If I am choosing to buy in a subdivision, town home or condominium complex: Have all of the properties been sold, or is this a new subdivision where the home owner’s association dues may be subject to change if the builder needs to recoup its costs quickly?
- If I am single, am I willing to have a house mate to make this house more affordable?
- If I am partnered, can either of us afford to cover the mortgage, taxes and utilities should the other lose his or her job?
- Do I have access to thousands in cash if, for example, a pipe breaks or a septic tank fails? If not, do I have access to credit to cover such an emergency? Can I afford to tap that credit?
If the answer to any of those questions is ‘no,’ rent. This is particularly true if you are single and child-free. Rent an apartment. Rent a house. Just rent. Take the money you’re not spending on taxes, maintenance, and extra furniture and sock it in a savings or investment vehicle that generates the biggest return you can find.
Ask an attorney:
- Will my mortgage be a recourse mortgage?
- If I have to go through a foreclosure, could I be subject to deficiency judgment?
If the answer to either of these questions is “yes,” rent. You can’t predict 15, 25 or 30 years worth of future, and if something catastrophic happens — such as a job loss — you don’t want to be on the hook for money you don’t have and can’t pay.
Don’t do what I did. Ignore your parents. Ignore your friends who were fortunate enough to enter the market at a good time and insist it will pick back up one day. There is no shame in renting. And in many, perhaps even most cases, it’s a damned sensible thing to do.
* Note: I am not including cable. I’m talking natural gas heating and electric, and I live in a southern state where winters are mild and gas and electric are both relatively cheap.