Buying a home has often been treated as a financial rite of passage. Past generations have generally considered it a given that owning a home is a smart financial choice, but for many people today (especially millennials), it’s not that cut and dry. So what are all the questions you should consider to know if you should buy a house? We cover six key factors.
1. How is the local real estate market?
The state of the real estate market varies from city to city, and even neighborhood to neighborhood. Spend some time looking at what current homes in your area cost now, as well as how the current prices compare to trends over time.
A real estate market that’s on a consistent upward trajectory is a good investment if it stays that way, but sometimes it means the prices are inflated and headed toward a big drop. On the other hand, low prices mean less upfront cost for you, but if they’re part of a downward trend could mean your home quickly loses value.
This is where you have to consider what you know about your city. Rising prices could mean you’re in a bubble if the increase is outpacing growth in salaries or there aren’t enough people moving to the city for the increase to make sense. Low prices in an area that’s starting to become more developed can mean you’re getting a great deal on an area about to go up in value.
Start paying attention to the real estate section of your local paper and do your best to make an informed guess about where your market is headed.
2. What is your current financial situation?
Your Home Loan
No matter what the market looks like, you can’t buy a home if you can’t afford one. Your first financial calculations to make are straightforward:
- Figure out how much you have in savings that can go toward a down payment.
- Determine how much you can reasonably afford to pay monthly on a mortgage.
You can use these numbers to start shopping around for home loans. Get some quotes to get an idea of the amounts you can be approved for. Be aware that if loan providers run a hard credit check (which results in a more accurate quote for you), it could affect your credit score, but you can reduce the effects by making sure you get all your quotes within a few days.
While your down payment and mortgage are the main costs to consider, they’re not the only ones.
According to The Zebra’s licensed insurance agent Neil Richardson, it’s important to shop for homeowners insurance in advance of buying a home, not only to factor the cost into a budget, because the type of coverage can vary among providers.
“While cost savings are important, it’s even more important to understand how the structure of your home and personal property is valued by your insurance policy in the event of a claim,” he said.
When you’re facing a large down payment, it’s tempting to skimp on other expenses, but when you’re about to make what’s possibly the biggest investment of your life, you want to make sure it’s protected.
Other Home-Buying Expenses
But that’s still not all. In addition to homeowners insurance, you have to factor in closing costs, yearly property taxes, and the costs for covering fixes as they arise (although you can bring those down by doing regular preventative maintenance).
After considering all that, you should have a good idea of what you can afford and whether buying in your area is feasible.
3. What are your long-term goals?
Er, do you want to live there?
Buying a home isn’t just a financial decision. Depending on what you want out of life, it can either be a meaningful decision that brings you a lot of joy, or it can feel like an albatross that keeps you from other things you love.
Consider whether or not you want to stay in the city you live in now for the long term. If you don’t, then buying is only worth it if your real estate research makes you confident that the market will continue going up.
Is a house your main priority?
Also think about any other spending priorities you have. If you’re saving up for a wedding or want to travel a lot, then your money may be better spent on those things.
On the other hand, if you’re ready to live somewhere that really feels like it’s yours, then the financial benefits of owning a homemay be less important than the emotional ones. Home ownership means you can make the changes to the house you want and trust that you’ll be able to stay there long term without surprise rent increases (although you should be prepared for tax increases).
If you’re leaning toward a “yes” on buying a house, then there are a few additional things to pay attention to make sure you get the most out of whatever home you buy.
4. Is it the right time of year?
Real estate encounters seasonal trends. Homes may cost more in the summer and less in the winter, perhaps due in part to the increased demand and higher frequency of moving that occurs in the summer. If you’re in a position to take your time making a decision, stall your home search until the fall.
5. How safe is the neighborhood?
Crime is a fact of life, but you can reduce your own risk of having to deal with it in your own home by doing some due diligence before choosing a neighborhood. Services like CrimeReports and NeighborhoodScout provide information on the frequency of crime in different neighborhoods.
Keep in mind that if you find a house you love in a neighborhood with a higher crime rate than you’re comfortable with, a home security system can make a difference (and save you money on homeowners insurance besides).
6. What changes are coming to the neighborhood?
There’s no good way to know what a neighborhood will look like in five or 10 years, but there are things you can look for that give you an idea of what to expect in the next two or three. Keep an eye on local publications, the city website, and the local chamber of commerce website for mentions of urban development projects or new businesses moving in.
New development usually means your home value will go up, but also means more traffic and higher property taxes. Having some idea of what’s coming will help you make a more informed decision about whether or not a neighborhood is right for you.
Buying a home is one of the biggest decisions most people make in their lives; it’s not one to be taken lightly. Before you decide to buy a house, make sure it’s the right choice for you and that the house you buy is likely to make you happy in the long term.