This is the second of a four part series - tips for first home buyers. I’ll be doing on some topics related to home ownership. Here’s what is upcoming over the next few weeks:
- Posted: Pay Off the Mortgage Sooner or Invest: A Look At The Math
- The House: Is It An Investment or Just A Home?
- How To Pay Off the Mortgage Early
One of the signs of a person who is financially fit is that they know when a financial decision is right for them. Those who make significant financial mistakes do things when something is right for others.
For example, if home prices are low, it seems like that would be the right time to buy your first home. However, if you’re not in the right position to buy a home, then the time is not right (for you).
This is easy to say, but hard to do. There is a bug – the first home buyer bug – that can really sway people in the wrong direction.
In our case, we waited five years before we bought our first home. Lots of folks thought we were crazy. In fact, we tried to buy a home after three years and it just didn’t work out, but I’m so glad it didn’t. Here are six advantages of renting instead of buying a home.
First Home Buyer Info: You’re Ready to Buy if …
1. Married at least a year
If you are newly married, that is awesome. Enjoy that time, and don’t think about buying a house. You need time to get to know each other. Time to dream together. Time to find out who and what you want to be as a couple. I think the first year of marriage is a great time to live in the now without charting the entire course of your future.
Besides, depending on how much you paid for a wedding, you might need to be rebuilding those savings.
Save some stress and major decisions by renting.
2. Clear decisions on kids and stay at home plan
Part of what will happen when you wait at least a year after marriage is you will make some important decisions about your future as a couple. When I talk about how to afford to be a stay at home wife, I share the importance of making that decision early.
Once you have decided about kids and a stay at home spouse, you actually know how much income you will be able to devote (long term) towards a house purchase. It would be a huge mistake to buy something based on both of your incomes and then decide one spouse wants to stay home.
3. One month of cost of homeownership learning
If you are a first time home buyer you will enter a world of unknown expenses. Electricity, water, property tax, house insurance, new refrigerator … Don’t purchase your house until you take time to contact people or companies to get a fair idea about these extra costs associated with home ownership.
Being a wise financial planner means being able to prepare for the worst case scenario. If something bad can happen, it probably will.
4. Fully funded emergency fund
After you do your month of homeownership learning, you’ll be convinced that you need a fully funded emergency fund. Here are the two biggest reasons:
- You need to be prepared when things go wrong. You don’t know what will break, but you do know something will break. First time home buyers often neglect this important bit of information – things break.
- If you cannot save your emergency fund without a house payment and upkeep, then you probably won’t be able to do it with the house payment.
5. Intention to stay put for at least 3-5 years
“Stable job” and clear vision for the future
Perhaps there is no such thing as a stable job. But, do you even have a job? Do you like the job? Do you see yourself continuing the job for several years?
If you are not content with your work or feel discouraged about its potential in the future, then I would wait to buy a house. You do not want to be in a situation where you feel stuck in a job just to make house payments. A first home buyer should be more stable.
Done with school
School folks are transient. If you’re still in school or thinking about doing another degree, then hold off on buying a house. Usually, schools don’t move – people do. Continuing education may force you to sell your house before you are ready to sell the house.
6. First home buyers should have at least 20% down
I know some financial folks disagree with this one. But, I think you should put down at least 20%. This will impact how much you can afford to pay for a house, but here’s why:
- Means you have created a savings habit and have shown your ability to sacrifice.
- You won’t have to pay PMI insurance.
- From the start, you want to own as much of your own home as possible.
You will need to decide if you want a 15 year or 30 year mortgage.
7. $1000 in cash (in addition to emergency fund) for ‘house set up’
Moving into and setting up a new (to you) house always costs money. You might say that you’ll just live with that hole in the wall, but after a month of looking at that hole, you’ll want it fixed. By having some cash on hand, you can afford to make the necessary changes to fix up, furnish, and decorate your house a little bit.
What other tips would you offer to first home buyers?