Too often people ask the question, “are we ready to buy a house?” or “is this the right time to buy a house?”
I’m not quite sure there is a perfect time to buy a house. I think back to my first home purchase. I was in my early 20s and was debating whether to rent or buy. Mortgage rates were a little over 6 percent and I was making an entry level corporate salary. Fortunately, I had a connection with a mortgage broker who ignored how razor thin my margins were on qualifying for a loan.
I bought the house. At first each month was a stretch. Within a year, my broker called me and said rates had dropped a percent and if I refinanced, I could save $100 a month. I did. My salary bumped a little and I started getting used to budgeting with the payments.
My friends who were renting were dealing with rising rents each year. My mortgage payment was locked in and other than a slight increase in property taxes, I could plan knowing what my housing costs were.
Within a few years, housing prices rose a bit and I started to build equity. I opened up a Home Equity Line of Credit at a low interest rate and withdrew some money for some renovations. After doing a mid range kitchen and bathroom renovation, I increased the value of my home.
Close to a decade later, I had significant equity in my home and was ready to use that equity as a down payment for a housing upgrade. My friends? Well, some were still renting and didn’t have the ability to save enough for a down payment on a home. They could not keep pace with the rising housing costs.
There is no way I would have been able to save six figures in that amount of time if I was paying rent. For one, my rent would have been higher than my mortgage payment and secondly, I would not have been paying down principal and increasing my home value.
Everyone’s situation is different. If I was in a different geographical location, I may not have been able to find an affordable house and rent could have been my only option.
LESSON LEARNED: Don’t try to time the stock market or the housing market. If you want to buy a home, explore your options and jump in. Mortgage rates rise and fall. Even if rates are higher now, buy the house and refinance when the drop.
When I sold my first home to move into my current home, I felt the same nerves I did on the initial purchase. My mortgage was going up a bit and I had to rebudget. However, after a few years I was able to refinance at a much lower interest rate and my current payment is not much more than what I was paying a decade ago. I have double the house for almost the same monthly cost.
The nerves are real. However, over time you have options when you just buy the house. I am not advocating for stretching yourself so thin that you can not put food on the table. However, if you are thinking of buying a home – just do it.
A home is still an investment. If done properly, you can enjoy your investment while it is still appreciating in value.