3 Right Reasons to Buy a home and 3 Wrong Ones
There are many many reasons why people decide to buy a home. Some of them are great reasons! And some are not great and can cost people tens of thousands of dollars.
Here are three bad reasons to buy a home and three good ones.
People always float out their advice on what other people should do when it comes to buying a home. When I work with my clients I always want to know why they want to buy a home. And, not every reason is a good one!
Make sure to read to the end of this article because the last reason is the one I hear the most frequently!
- One horrible reason to buy a home is because interest rates are historically low.
Yes, interest rates greatly impact how much home you can afford. 1% increase in the interest rate decreases your buying power by 10%. Aka, your monthly mortgage payment would be the same if you bought a $300k home at 3% interest rate or a $270k home at a 4% interest rate. You can get a lot more bang for your buck with these low interest rates! However, this is a bad reason to buy a home!
Don’t have FOMO, (fear of missing out, because interest rates are rising.) Rates don’t jump 1-2% overnight. It takes a few years to increase significantly. And, if you’re not financially ready to buy a home, you should wait! Because it could cost you a lot more than paying a slightly higher interest rate.
A better reason to buy is because you’re financially ready. For most buyers, that means having enough saved up to afford the down payment, closing costs, and movers. On top of that, having roughly 3-6 months worth of housing expenses saved in reserve for when, not if, things break down. I always suggest having at least $5k in a rainy day fund, and set aside $200-300 per month for housing repairs.
Being financially ready also means you can afford the mortgage payment. This is a much better reason to buy a home than because you want to capitalize on low interest rates.
2. The second awful reason to buy a home is because the housing market is hot.
Many people, especially first time home buyers, can have fear of missing out. Thinking that home prices are high and continue to go up. They don’t want to miss out and not be able to afford a home if prices continue to go up.
You’re probably thinking, here comes the part where he says theres going to be a crash and to wait to buy until then. No, I’m not. There’s lots of sound data and evidence saying there won’t be a crash. And, my wife and I are personally buying a home.
I mention all of this because it’s easy to think you’re going to miss out if you don’t buy right now! But, buying a home is a long term decision. One you’re stuck with for years. Don’t be short sided and only think about the short term. But, how buying a home will impact your life in the long term.
A better reason to buy a home is because you’ve done your research.
You know the market is fundamentally strong. You know builders have been not building enough new homes for over a decade now and will take a LONG time for the supply to catch up to the demand. You know Millenials are in their prime home buying years, and there’s more Millennials than Babyboomers. So, They’re still be strong demand for years to come.
And, you know buyers right now are the most qualified they’ve ever been. So, it’s nothing like 2008 when buyers used risky loans and didn’t have the income to pay for the mortgage, causing millions of homes to go into foreclosure.
Knowing the real estate market, and your city’s market is a much better reason to buy.
3. The last bad reason people buy homes is buying a home is that it’s always a good investment.
This one I hear very frequently, but honestly it can cost you tens of thousands of dollars if you take this advice without knowing the risks.Your home IS a great long term investment! Many people this their primary residency is an investment. But, it’s not. It’s a liability. Because you’re paying a mortgage every month with no guarantee you’ll make money from it. Now, the longer you live in the home the greater likelihood you have of making money when you go to sell the home because real estate prices rise on average 3.6% every year. But, real estate prices aren’t linear. They fluctuate and go up and down. So, I don’t ever bank on making money with my primary home unless I plan on keeping it for a long time.
Now, I’m not saying buying a home won’t make you money! My family invests the majority of our savings into buying houses because I think it’s the best way to increase our wealth. But, don’t buy a house without doing your research because you think you’ll always make money when you sell the home.
A better reason to buy a home is because it fits your needs now and in the future.
Buy a home that fits your current living needs. But also think about what you’ll need 5-10 years down the road. That way your home can grow with your needs and allow you to stay in the home for many years. Increasing the likelihood you will make money when you go to sell the home because you don’t need to keep buying a new home every few years.
There’s so much that goes into buying the right home for you. It’s not as easy as seeing a home online, loving the kitchen, and buying it. You need to make sure you’re financially ready, not short sited in why you’re buying, and make sure your home fits your current needs, and your needs in the future.
And, that’s a lot to figure out and why using a real estate agent is so important! We guide you through the process and make sure you find a home that truly fits what your needs are.