Buying a home can be a major responsibility. If something breaks, you fix it. You have upfront costs. You have to fill out paperwork. And then you have to fill out more paperwork. And then, just when you thought you were done… you guessed it! Even. More. Paperwork.
Many personal finance bloggers who are way more hip than me write compelling articles about why they will never buy a house again. They talk about the huge costs required to purchase a home. The tax advantages aren’t what they used to be. One article suggested that a reason to continue renting is to avoid the responsibility of changing the outdoor light bulbs. Sigh…
I admit, buying a house is typically less exciting than going to a music festival… unless you have really weird ideas about what constitutes a good time or unless you are being filmed on HGTV as you purchase a two-million dollar tree house with your fortune gained from making contemporary art sculptures out of rubber bands and recycled wig hair.
However, owning a home isn’t without its own fun. You can paint murals on the walls, you can adopt as many ferrets as the law will allow, and any improvements you do on the property will contribute to your equity rather than the equity of your landlord.
If you own your home, the rent won’t be raised, or the landlord can’t kick you out because they decide to sell the property or move back into the home once you have made it beautiful and cozy.
Buying a home could be right for you… or not. Let’s address your concerns…
Are you afraid of being tied down?
Everyone is afraid of being tied down, except for Capricorns.
Let’s talk about that… what does “being tied down” mean to you? If you need to move to go back to school next year, that’s valid. You are literally being tied down by something and you probably shouldn’t buy a home this year. If you’re not even sure if you like the area where you’re living, then maybe you shouldn’t buy a house yet.
Often, the feeling of being tied down is just that – a feeling. If you further examine that feeling, you may actually find freedom in the things that you perceive as being limitations. For instance, if being “tied down” means that you don’t like having to spend a lot of money on your living expenses, buying a home could actually provide you with more freedom.
One of my clients was ambivalent about buying a home, so we discussed what made him feel tied down. He wanted the ability to travel at a moment’s notice and to not be encumbered financially. However, he didn’t mind having roommates and sharing his space with friends. I helped him to purchase a 5-bedroom home and he immediately rented out 4 of the bedrooms. He lives in his home for free, because the income from his tenants covers the entire mortgage. He is able to save his living expenses, he makes an additional payment toward his principal every month, and he still goes to Burning Man every year. How does that sound for “not being tied down?” This guy nailed it.
Do you want to be able to travel?
We all do. Even my dad travels now… he’s the guy wearing socks and sneakers at the beach.
Owning a home isn’t necessarily an obstacle to travel, you just have to make it work.
If you are currently living in a rental and are able to travel, how have you achieved this so far? The same method should apply to home ownership, unless you simply travel between leases and put your stuff in storage each time you want to leave. Furthermore, as someone who has traveled quite a bit, I personally appreciate having roots. Having a home to return to has been key to reintegrate into life upon return. Do you really want to get off that plane with hellacious jet lag and then have to figure out how to rent a new place and drag your stuff out of storage while you’re trying to process all of the life-changing experiences you just had? (Maybe you do! If so, you have far stronger constitution than myself.)
If you would like to travel long-term, you can rent your property and the tenants can cover your mortgage while you are away. Hire a reputable property management company to manage your rental in your absence. (Technically, you could do it yourself, but if you are traveling off-grid, you wouldn’t be able to call a plumber if a pipe bursts or something.) Depending on the area, it’s possible that you could even make a profit by renting your property during your absence.
If you are traveling for a shorter period of time, you can rent out your property on Airbnb. Several companies and individuals professionally run Airbnbs for homeowners. They handle the bookings, guest communications, and clean your property between guests. In Denver, I have had several friends who earned enough money by renting their home on Airbnb, it was more profitable for them to live in Bali and do yoga than it was for them to stay home and work. This is especially great for people who can work remotely, like web designers, graphic designers, and so forth. (Check your local laws before moving forward with a short-term rental, as many areas require a license.)
Do you not have $50,000 (or 20%) for your down payment?
This notion that you have to have a lot of money saved for your down payment is often a misconception. If you have good credit (or even decent credit), you probably don’t need to have a 20% down payment.
Conventional loans allow you to purchase a home as low as 3% down if you have excellent credit, while FHA loans allow 3.5% down payments for folks with mediocre credit. In Colorado, CHFA loans allow home-buyers to purchase a home with .5% down, which is typically going to be less than what you would pay for first and last month’s rent with a deposit on a rental. If you are a United States Veteran, you are likely eligible for a VA loan which will allow you to purchase a home with zero money down. (Note: in all of the cases above, you will likely still need to have closing costs available.)
(The 20% down payment myth likely originated from misunderstanding the rules about mortgage insurance. If you don’t put 20% down on your home, then you will have to pay mortgage insurance until you reach 20% equity. Once you hit that 20%, you can refinance to drop the mortgage insurance. Mortgage insurance sucks and it doesn’t benefit you whatsoever, but it can be a necessary evil to purchase a home. Chat with a lender to see if you could purchase a property for less than what you pay in rent, even with the mortgage insurance included in your monthly payment.)
Do you tend to trust the wrong people on a very regular basis?
This can be an issue. If you wind up hiring a shitty real estate agent, they may pressure you into buying a home that isn’t right for you. If you know this about yourself, get some friends to help you interview the agents or get agent referrals from someone you trust. Watch out for answers that sound flaky. This is not a time for you to be worried about hurting other people’s feelings or whether you are coming across as “nice.” There is too much at stake. This is a time for you to really vet these “professionals” and ensure you’re picking the right person for the job. Don’t be afraid to say no if it doesn’t feel right!
Maybe bring your bitchiest friend to interview real estate agents – it sounds silly, but seriously… we all have a bitchy friend and we might as well put their skills to use! If the real estate agent can pass the Bitchy Friend Test, you can hire this person to be your buyer’s agent.
And make sure to check out the Shit Real Estate Agents Say to Get You to Hire Them series for more things to watch out for!
Will you have to use your nest egg to purchase a home?
This can be a bit of a sticky wicket. Many of us purchased our homes and then quickly scrambled to rebuild our nest egg in the event of unexpected, but necessary home repairs. Most of us were able to do so successfully. However, there is always the chance of a SNAFU occurring before you have replenished your savings. In this case, if something major goes wrong with your home, you may not be able to cover it. This is a valid concern and I would suggest that you take this possibility very seriously.
To decrease the likelihood of this scenario, you should have the home professionally and thoroughly inspected prior to purchase. (Of course, things may look fine one week and fall apart the next. That’s life.) Strongly weigh the pros and cons of this scenario. I purchased my home on a prayer and dime and everything worked out. My home greatly increased in value, very quickly. Had I not taken the chance, I would not have received the rewards, but it was a risk. Of course, I do real estate, so I knew what I was doing. Make sure that you are aware of the market in which you are buying and that you have a trustworthy agent who will work to find you a home in an area that is likely to appreciate.
Do you have a super unique rental situation in which you pay rent that is priced well below the market?
If you are one of the lucky ones who would actually have to pay a lot more to purchase a home than what you’re paying in rent (and you’re happy), stay right where you’re at! Take advantage of the situation while it lasts but be aware that it won’t last forever! Save your money. If your situation changes unexpectedly and you didn’t plan ahead, you may not have enough money saved to purchase a home or even to pay rent if the market has greatly increased.
For the past few years in Denver, home ownership has more often been a better scenario than renting, as rents have continued to rise. If these renters had purchased a home at any point, they would now have a good amount of equity in their home. Their living costs would be stabilized instead of continuously rising. All in all, home ownership is a good move for most people, but there are always the exceptions to the rule and buying a home is not a decision to be taken lightly.
Not all houses are created equal. Not all housing markets are created equal. Not all real estate agents are created equal. Do your research and dig deep into your values to discover the life you would like to create. With the right information, the right team, and some creativity, home ownership has the potential to help take you to the next level… or not.