Buying a home
It’s the American Dream, most people hope to own their own home someday but how does it work? Where do you start? That’s exactly the question we’ll be answering in this Home Buying 101 Series.
There’s No Wrong Time
Before we get started, I want to talk about the idea of buying a house at “the right time.” People get stressed about buying a house at the top of the market. They have the idea that they should wait until things go down. Two years later, they’re still waiting for prices to go down but they’ve actually gone up, making the whole concept even worse. Let me tell you honestly, if you’re buying a house to live in, stop thinking of it as an investment. Unless you’re going to sell this house and not buy another one, it’s not an investment. It’s more like you’re joining an exclusive club with high dues but even higher rewards.
Why It’s OK to Ignore the Market
You may say: But Chris, if I take your advice and buy anytime, couldn’t I be paying too much for my house? Couldn’t I end up ‘under water’ on my mortgage in five years? The easy answer is: Yes. Yes, you could owe more on your mortgage in five years than your house would be worth if you had to sell it. But think about it, if you’re committed to the idea of being a home owner and you sell this house, you’re going to buy another one. If you “lose money” on this house because the market is down 5%, that also means you’ll be paying 5% less for the next house. Ditto if you sell when the market is up 10% and realize a gain, you’re going to be paying 10% more for your next house.
This is Where Goals Come In
If you’re buying a starter home – meaning that the house works for you today but in five years or so, you expect to have a couple of kids and need a bigger place – then buying high is not bad at all. You pay a premium for the first house to enter the club. If you sell that house when the market is down, you’re saving that same percentage when you buy the next house, the bigger, more expensive house. For example, you sell your starter home for $400k, which is 5% less than you paid. On paper, you lose about $20k. Now you buy the Forever House for $750k, saving that same 5% or $37,500 – at least – since more expensive homes often lose a bit more in a down market. That’s not so bad, is it?
If you expect to be downsizing or moving out of the area when you sell this house, it can be trickier, depending on how long you expect to live there. If you’ll live there for at least 10 years, no problem. The market most likely will be higher than when you bought. If you expect to stay only 5 years or so, you could be buying at the top of the market and selling at the bottom, which is a total bummer. There are things you can do to mitigate that but it helps to be aware – when you’re buying the house – that you may be selling it for less.
That’s why goals, which we’re doing in step one, are so important. Check out HBU E02 to get started.