It’s safe to say that for the majority of us, our home is the most valuable financial asset we possess. But it is about so much more than an investment or a number on a spreadsheet. Regardless of whether we call home an oceanfront estate in Malibu, a tiny studio apartment in New York City or something in between, home is our safe harbor.
It’s not surprising that first-time homebuyers get nervous about taking the plunge into homeownership. Taking on a mortgage and being responsible for maintaining a house is a huge commitment, financially and emotionally. If you feel both excitement at the prospect and anxious by the responsibility, that’s normal.
Ask yourself three critical questions to gauge your readiness for this life-altering experience. This isn’t a foolproof method to avoid buyer’s remorse, but answering the questions honestly without putting your finger on the scale will increase your chances of being a happy homeowner instead of one filled with remorse.
Are you professionally ready to buy a home?
Your current job and future career plans are an essential influence in your homebuying decision. First, if you are a salaried employee who has worked at least two years in your field, you should be able to get a mortgage providing you have a decent FICO score. Depending on the other factors, you may qualify with less than two years’ experience.
However, if you work on commissions and bonuses or are self-employed, lenders want to see a solid two-year history of reliable income to secure a loan. The same holds if you need a part-time job to supplement your income.
Do you plan on changing jobs or perhaps moving out of the area to further your career in the next two to three years? If the answer is yes, it may be wise to hold off on buying a home right now. Recovering the costs of buying and selling takes roughly five years. Additionally, bear in mind that if you sell in less than two years, you will be subject to capital gains tax as well.
Are you in a good financial place to buy a home?
Fact: You do not — I repeat, do not — need to put 20% down to buy a home. There are many programs available to first-time buyers that make it possible to buy a house with as little 3.5% down.
In addition to a down payment, you need to factor in closing costs, which are generally equal to 2-4% of the purchase price. You will also need funds to cover moving costs and home furnishings or repairs, if necessary. It would also be a super idea to have spare cash available for unexpected expenses.
When you rent, your landlord may pay heating, sanitation, water and sewer fees. Make sure that when you evaluate affordability, you take into consideration those expenses that will now fall on you as a homeowner.
Are you emotionally prepared to buy a home?
Question the motives inspiring your desire to buy a home. Is everyone in your circle of friends taking the plunge, so you feel somehow left behind? Are you having a less-than-pleasant rental experience that is pushing you to see homeownership as the answer? Are well-meaning family members or friends trying to sell you on buying before you are ready?
Building wealth through equity, having control over your personal space and taking that next step into adulthood and being part of the American dream are all positive arguments that support owning over renting. But if the responsibility is going to be a burden rather than a joy, and if having added chores will make you resentful, it may be best to enjoy the freedom of renting for a while longer. Trust your instincts.
A recent Zillow survey found that 81% of buyers between the ages of 18 and 34 years old felt they rushed into the process of buying a home without having enough information. Reasons for regret included high monthly payments, inability to relocate, unexpected costs of repairs, too much yard work and buying a home that was too small.
Learn from others’ mistakes. If your response was no to any of the questions, allow yourself the grace of time. Don’t rush into a significant commitment you are not ready to make.