The other day I was out for drinks with a friend and he mentioned that he was considering buying a house and he was wondering how much he should spend on it. In other words, what percentage of his budget should go toward a house. For those of you who are curious, conventional wisdom says that you should spend no more than 28% of your budget on a mortgage. But, I found myself wanting to take the conversation a few steps back - as I often do - to ask the question why do you want to buy a house in the first place? Are you sure that buying a house is the next right step for you? That’s the question that I want to get at in today’s “Ask The Classy Frugalist” post.
Just so you know my biases, I rented a few apartments as well as a townhome for about five years. For the last three years, my husband and I have owned our home. I can honestly say that there are pros and cons to both renting and buying. I think we made the right decision in buying our current home, but it wouldn’t surprise me if we went back to renting someday so we could have a little more freedom and flexibility to travel.
Considering buying a home? Here are a few questions to ask yourself:
1. Why? Buying a house is a big decision and a significant investment you should have a clear answer for why you want to buy a home. Obviously, I can’t answer this question for you but I encourage you to think long and hard about it. Here are a few answers that I don’t think hold water: “this is just the logical next step,” “it’s the American Dream to own a home,” “it’s a great financial investment,” and “I can afford it.” When I think back to three years ago when my husband and I bought our home I think we would have said something like this: buying a house makes sense for us because we are looking forward to the responsibility of home ownership we were eager to care for a home, nurture it, and make it our own. Also, we were excited to be able to play our speakers as loud as we want. We were ready to put down roots in our home, neighborhood, and community.
Tip: Don’t shy away from this question. Sit down with your spouse, or a trusted friend, and ask yourself “why.” Need some fodder for discussion? Check out this article on 5 reasons not to buy a house and 5 reasons you should.
2. Does this decision align with your values? Again, buying a home is a large investment does this type of investment really line up with your values. If you value travel, flexibility, and having more discretionary income – maybe not. If you value stability, independence, and creativity – maybe so. Make sure not only the decision itself but the magnitude of the investment aligns with your values. Are there other financial goals that are more important right now?
Tip: Again, before you get lost looking at homes online, take the time to write out your top five values. Where is your heart? What are your dreams for the future? Is a home an important part of realizing those dreams? Or, might it detract from them? Buying a home should be a financial decision that helps you create your fulfilling life – not hinder it.
3. Are you looking for flexibility or stability? It’s obvious, but it’s amazing to me how few people consider this. Conventional wisdom says that you should stay in a home for at least 5 years. Depending on how much money you put down or the state of the housing market, you may need to stay in your home longer. No one wants to sell their home at a loss. Are you ok staying put for that length of time? If you are not feeling rooted in your city, buying a house is not for you.
Tip: Take an inventory of your life – are you feeling settled with your job (if not, are there other viable job options in your city)? Is this the community (the physical place) where you’d like to put down roots? Have you considered living other places? Do you have sustaining relationships (family and friends) in this community that will keep you grounded? Make a pro/con list.
4. Do you want to take on the responsibility? Having a home can consume a lot more money and time than it appears on face value. Are you ready to come home from work and mow the lawn? Can you afford to replace an appliance if it breaks? Ready to roll up your sleeves and figure out why the faucet is leaking? Does caring for your home fit in your lifestyle? Yes, you can certainly hire out some of these services – but that comes with a hefty price tag. When it comes to buying a house, the cost is more than just the mortgage and down payment, you’ll want to make sure that you have money set aside for emergencies, maintenance, and general upkeep.
Tip: Check out this NerdWallet article on the huge, hidden costs of owning a home to guide you as you take this question into consideration. Talk to friends and family who own homes ask them what the responsibility has been like for them. Have they experienced any surprises along the way?
I’ve saved the best for last – can you actually afford to buy a home. Don’t worry, I’ll take on that question in next week’s post. Before you even jump to the financial consideration though, I encourage you to weigh the questions above which are a little less tangible and often more difficult to answer. Likely, no one (outside of a good parental figure) will challenge you to consider these questions. Your mortgage lender will be happy to help you see if you can afford it, even if it’s not right for you.
I realize that I’ve come down pretty hard on home buying in this post. I just don’t want you to assume that buying a home is a given. There is no reason why you have to buy a home. There are many people who rent all of their lives and are perfectly happy. It aligns with their values and lifestyle. Renting gives them the freedom to live their best life – they have more free time and more flexibility all while cultivating their own sense of community and stability.
That being said, owning a home has been an incredibly rich experience for my husband and I. We take so much pride in having friends and family over to our house. We love the home that we are creating together – it’s a continual work in progress. We relish the creative freedom to make the house fit our needs and not the other way around. We’ve learned a lot from owning our first home and we’re already eagerly debating what our next one will be like as we learn more about ourselves, our family, our dreams. Today, a home aligns with our values. It’s a way that we can use our money to create a fulfilling life. If that changes, we may take our equity and go back to renting.
Excited to buy a home? Next week, we’ll talk about how to know if you’re financially ready. Do you have a question for the Classy Frugalist? Leave a comment on this post or submit it to me via my Contact page.