When Should I Buy a House ?

Buying your first house is one of the most , if not the most important life decision for a middle class family. But there are some things you should consider before attempting to buy a house.

There are many families that think they need to buy a house , when they cant . And there are times where buying a house might be a better financial decision . 

What I would like to propose is a shift in the way we think about buying a house. Probably not as mainstream as you hear everyday. 

Recently I bought a house and i would like to share the reasoning behind that decision as it turned out to be a great buy.

The correct mentality 

We need to break out of a mold in our thinking . Renting is not a waste of money , it is a utility and a necessity that you incorporate into your budget.

Long gone are the days when my parents used to say “ oh you’re wasting your money if you rent “because renting is just as necessary as having a car and you have to spend that money to have a roof over your head whether you are going to buy or rent.

In specific cities it is almost impossible to own a house, and there’s been a push to move to Low cost of living areas just so that people can buy houses. 

Take Ohio for example, there are some areas where if you spend $125,000 in a mortgage you can buy a 2000+ square foot home with four or five different rooms. 

That same house in California would be worth at least $800-$1 million. In recent years we’ve seen a lot of people from California moved to Texas just for the low income tax brackets and more affordable housing. 

So there are many economic and social aspects that govern whether we can either buy a house or not. Based on those assumptions one would be able to figure out if it’s better to buy or to rent.

When is it best to rent only ? 

In our previous example, California is a very expensive state to own a house. Buying a house would cost a huge amount and a burden on the family, so it might be more wise to rent.

Renting would be very important for the daily commute. Imagine driving for almost an hour or two back and forth in Los Angeles just to get to work because your house is too far. 

Also, renting is best when you are not sure if you will be continuing work at a specific job regardless if you have a family or not.

The Rose garden and big backyard might be a great idea at first but in this generation kids have grown up scarred from seeing people lose their homes in the 2008 housing financial crisis.

But there’s another very important factor that’s related to math. If a rent is cheaper than the mortgage payment then obviously the rent would be better. So always consider budgeting when it comes to rent and mortgages.

When I decided to buy our home it was because we were being forced to move to a bigger apartment that would’ve cost $1270 a month. When I did the math on the mortgage it cost me $1253 a month. Math matters a lot ! 

Another consideration when paying your mortgage, Only part of the total payment goes to actual equity in the house . Most of the money you pay goes to interest , insurance , and property taxes. 

At least in Renting your paying for what you directly use . Not only that, maintenance and replacement is solely on the rent owner and not you the tenant.

When is it better to buy ? 

Continuing the example from above obviously when your mortgage ends up being less than a rent you should strongly consider even buying a house.

If you live in a low cost of living area it is more important to buy a house because of home values being very acceptable compared to annual salaries.

Not only that but the resale value of houses can be very important in increasing someone’s net worth. When buying your home you try to get it below market value assuring that even if your home price drops you would still be in the green.

That is called a wedge deal in housing. When you buy a house for less than the asking price and the Average house prices in that area.

The house we bought was $40,000 less than the houses in the area that are being sold for the same square footage. I spent $12,000 to fix it up and make it exactly like we wanted it but also keeping in mind that these Home improvements would also increase the sale value.

Our net worth jumped $35,000 when we bought our house. But I think it would be even more because the house is now -after one year- are worth $80,000 more than when we bought it. 

Reasonable considerations when buying your first house

Let’s be honest, it’s not going to be perfect. There’s a lot of emotions and anxiety when trying to pick the perfect home, and then the hard work and intensive manual labor begins.

There are always going to be repairs and problems that will follow you unless your on top of things. Bills , HOA’s and even neighbors can make you life a living hell in some extreme cases.

Any house no matter big or small requires constant attention. The difference being when renting ,YOU are the one that works on these issues and not another owner.

However, I want to bring in a new mentality when we think about buying these first homes especially for people who are buying for the first time; this is not your forever home !

The average American family moves at least 11 times in their lifetimes. Chances are this is not going to be the one house you spend your life in. So spending exorbitant  money on a house that you will probably replace in the future may not be the best idea.

Many positive and negative factors can affect if you’re going to stay at home or not e.g getting a promotion at work and making a better income and upgrading , losing a job, kids growing up and leaving for college and living outside of the home.

The memories will always live with us and that’s why we have pictures and camera phones but it would be more important to keep houses for what they are, investments.

Put the end goal in mind

I like to think I’m an optimist and that buying this first home and selling it later on for profit means that our jobs and our financial well-being will be even better and we could upgrade to a nicer house.

It helped me take things easy when we were trying to look for our homes and we did not get dragged into a bidding war.

It helped me when I was negotiating and I was ready to walk away because If I did not get the price that I was asking for.

When doing the upgrades I only thought of what would increase the value of the home and I invested in specifically in those repairs.

I chose a specific area that I knew would be very important 5 to 10 years from now so that whenever we do decide to sell the house it’s it’s still going to be in high demand.

And even if all the main items including the HVAC, roof, attic’s were to fall apart, I would still be in the green from this investment.

You might think that’s a very materialistic way of thinking, but I am in no way disillusioned that this home is more than brick and mortar. The fact is, my family is where my home is !

All the memories we make aren’t because of the home itself but it’s because we live in it. It would be foolish to not consider a better financial state for my family when making this type of decision especially when it could easily break us the same way. 

When you’re ready to buy 

We went through a lot in the philosophy behind buying vs renting. So let’s assume your ready to buy.

A word of advice , try to save 20% of the down payment to avoid having the High PMI . This allows your monthly payments to be lower and shows to potential lenders you’re serious and may even get you lower interest rates. If not then don’t worry it won’t stop the home buying process if you only have 3% just won’t be the best rates.

Also if you’re reading this 2 years before you actually buy your house , try to open a 2 lines of credit and build your credit score so you don’t derail the dream when your ready to go through with this.

Also you’ll need to save up for closing costs- There’s a lot of saving to be done – this is approximately 3% of the total payment. A good idea is to get in touch with a local real estate agent and understand exactly what to expect. 

In short plan accordingly and budget this major issue way beforehand. To read about the step by step process read here.

Thanks for Reading until this point !