I recently read an article about why you should always rent where you live instead of owning. The individual who wrote the article is pretty well known and someone I’ve enjoyed reading about, so hearing him take this particular stance was, well, confusing.
I mean, I just saw a promo video for a series about himself (I didn’t say he was humble) and guess what the series is about? His foray into buying real estate.
Small technicality aside, there are legitimate reasons why someone should not purchase a home.
Ever heard the saying, “Just because you can, doesn’t mean you should?”
Yeah that applies to buying a home. Just because you have the ability to get a loan to purchase a home, doesn’t necessarily mean you should exercise that ability.
For example, you’ve just jumped into a new job. Now, it’s within the same industry so your excited friend or family member who recently purchased a home (and is now a home buying expert) has the wise advice for you to do the same since lenders will accept your W-2s even though you’ve changed jobs. While this is true, it doesn’t mean you should run right out and try to purchase. How secure is your new job? What’s the retention rate for your role?
Another case is where we’ve seen young people who have fantastic jobs and they make a great amount of money, but have no financial sense. They tend to spend as quickly as they make which is a recipe for disaster when owning a home – more on this later.
Financial stability is key when purchasing a home, as it will create less stress long term, especially in the case of first time home buyers.
2. No reserves
News flash: houses cost money.
Show me your shocked face!
This mentality of having reserves built up for after closing is essential, especially when someone has been renting for a long period of time and has grown used to simply calling the landlord when something broke (second news flash: you’re the landlord!)
This reserve is mainly for when things break (and they will break) and aren’t free or cheap. One way to offset this issue from occurring is to have a home warranty purchased at the time of closing for your new home. Warning here: make sure you get a reputable company, and read the fine print. It can be a hassle to deal with a home warranty company, but it can also be a major life saver for anyone who doesn’t have thousands in reserve for a major home repair.
That being said, be prepared for the maintenance of your home. If you’re stretched paycheck to paycheck, owning a home could place an additional and unnecessary burden on you.
3. Length of residence unsure
Fayetteville, North Carolina.
Home of Fort Bragg. Major military presence in the area.
And it also has one of the weaker housing markets due to the nature of the military – their people move a lot!
With typical VA benefits, some veterans can purchase a home for no money down, and even roll a percentage of closing cost into their purchase price.
Then they get transferred. Uh oh.
Now they’re trying to sell a home they’ve been in for less than a year, with little to no equity since there hasn’t been any time for the loan to mature. Add in the fact that they put little money down and rolled closing costs into the purchase price, and now their loan is actually 101-102% of the actual value of the home.
Meaning short sale. No bueno friends.
If you’re in a position where you move a lot, or your next position is unknown, just rent! That way if you have to move, you’re negotiating a lease and not trying to sell a house that you may have little to no appreciation/equity in.
Here’s the scenario: You’re early to mid twenties. Your Facebook is becoming overwhelmed with engagement announcements, or worse, babies.
Suddenly, it seems like everyone and their cousin has settled down, started a family, and yup, you guessed it, bought a home.
Except you. (Slacker)
Every date becomes critical – is this the “one”? Am I ready for kids? How do you even buy a house? And does anyone really know what a 401K stands for (PSA: it doesn’t mean you suddenly have $401,000 in the ol’ bank account.)
Our advice? Relax. Buy some clothes, or a fish.
Don’t buy a house because you feel pressured or left behind.
There will be plenty of time for you to fall in love – both with a person and a house.
If you’ve checked all of these off your list, we still advise talking with a professional real estate agent. They’ll be able to consult with you and help you formulate a gameplan on what’s the most prudent steps for you going forward.
This article should be read by everyone! Absolutely spot on. If you’re not ready you’re not ready. Don’t take a chance on what is likely the largest financial investment you can make. Absolutely have money in the bank for the “A/C isn’t working” (true story, mine broke two weeks after I moved in, small fix but hey you never know) or “the shower seems to be leaking water” or well, fill in the blank. PS – To my millennial friends: Did you remember lawn mower, shed, tools? Yeah that stuff has to be there too… See kids, this is why you need a great team. Hint. Hint. *sigh* Not me, the Mathis Team!!