Should I Buy a House Now? (5 Guidelines & Perfect Timing Tips)

If
you
move
again
within
a
short
period—for
example,
four
years—all
those
fees
will
dwarf
any
equity
gains
you
may
have.
Imagine driving
a
car
off
the
lot:
We
all
know
that
it
instantly
loses
value.
The
same
is
true
of
your
house,
and
it
takes
time
to
amortize
(or
spread)
the
costs.

Most
people
stay
in
their
house
for less
than
8
years,
and
that
number
is
the
highest
it’s
been
in
several
decades!
Before
the
2008
financial
crisis,
the
average
length
of
time
Americans
stayed
put
was
around
4
years.

Don’t
give
in
to
peer
pressure
to
buy
a
house
if
you
might
not
stay
there
for
the
long
term.
If
you
know
you’ll
move
in
fewer
than
10
years,
you
will
likely
make
more
money
by
renting
and
investing
in S&P
index
funds.

• 
  Common
  mistake: “I’m
  not
  moving
  for
  a
  few
  years.
  I
  should
  buy
  so
  I
  don’t
  throw
  money
  away
  on
  rent!”

• 
  Reality: If
  you
  buy
  for
  a
  short
  period,
  when
  you
  factor
  in
  all
  costs,
  you
  will
  almost
  certainly
  lose
  money.

Your
total
housing
costs
should
be
less
than
28%
of
your
gross
income,
including
your
monthly
mortgage
payments.
When
housing
costs
exceed
28%,
you
risk
being
overwhelmed
with
expenses
if
something
goes
wrong
(e.g.,
an
unexpected
repair,
job
loss,
etc.) Use
the
28/36
Rule
to
see
if
you
can
afford
your
housing.

Here’s
an
example:

• Assume
  you
  make
  $10,000/month
  (that’s
  $120,000
  per
  year
  gross
  or
  before
  taxes).

• Assume
  your
  total
  housing
  costs
  are
  $2,000
  per
  month,
  including
  monthly
  mortgage
  payments.
  Great!
  Your
  housing
  costs
  you
  20%
  of
  your
  gross
  income.
  You
  pass
  this
  test,
  and
  you
  can
  afford
  your
  housing.

• Note
  that
  total
  housing
  costs
  include everything:
  taxes,
  interest,
  maintenance,
  furniture,
  electricity,
  water,
  and
  even
  the
  roof
  repair
  7
  years
  from
  now
  (project
  it).

Evaluating
the
affordability
of
monthly
payments
is
crucial
in
the
context
of
overall
financial
planning
for
a
house
purchase.
It
helps
in
assessing
whether
you
can
maintain
your
lifestyle
without
compromising
on
other
financial
goals.

Why
gross
income?
I
use
gross
because
it’s
easy
to
calculate.
Everyone
knows
their
gross
income,
and
taxes
complicate
net
income
(different
people
choose
different
deductions).
However,
if
you
prefer
to
use
net
income,
go
for
it!
I
love
when
people
create
their
own
points
of
view
on
their
finances.

If
you
haven’t
saved
a
20%
down
payment,
you’re
not
ready
to
buy
a
house.

Why?
Not
just
because
of PMI,
which
is
an
additional
fee
you’ll
often
pay
when
you
get
a
mortgage
without
20%
down.

The
real
reason
to
save
20%
before
buying
is
counterintuitive:
building
the
habit
of
saving
is
critical before you
buy
and
have
unexpected
housing
expenses
such
as
a
broken
water
heater,
roof,
or
unexpected
taxes.

I
frequently
get
frustrated
comments
about
how
“impractical”
this
rule
is.
“How
am
I
supposed
to
save
20%?
That
will
take
years!”

Yes,
it
will—which
is
exactly
why
you
should
save
now.
Saving
is
a
habit
that
is
better
practiced
before
your
mortgage
is
at
risk.
Additionally,
consulting
with
various
mortgage
lenders
to
find
the
best
mortgage
terms
and
rates
can
significantly
impact
your
financial
planning.
The
Federal
Reserve
plays
a
crucial
role
in
influencing
interest
rates,
which
can
affect
how
much
you
need
to
save
for
a
down
payment,
highlighting
the
importance
of
understanding
the
broader
economic
factors
at
play.