Most articles on real estate this year have focused on first-time buyers planning to purchase their own home. New year, new you, new home – right? Hey, we get it; it’s easy to get caught up in all the hype and declare that not only is 2018 going to be your year, it’s also by extension the year you finally quit renting and become a homeowner.
Left out of the conversation is whether or not it’s actually wise (or feasible) to purchase a home right now. The answer is different for everyone, obviously, but it’s worth keeping the question at the forefront of your thoughts while you imagine yourself seriously considering home ownership.
There are a lot of variables and concerns you’ll want to keep in mind, and they don’t all revolve around finances and credit (although those are supremely important too!). Since most advice for first-time buyers tends to focus on these two, it’s worth exploring some of the other considerations.
What’s your job like?
This isn’t strictly about income, but if you haven’t taken that into account, you should probably stop reading and think twice about how serious you really are about purchasing a home. Assuming your income is sufficient to afford an average home and assuming your credit is reasonably good, what else is there? Case closed, right? Time to start shopping!
Well, not so fast. Again, it’s not just about income. First of all, are you secure in your job? Job security isn’t a matter of how long you’ve been there, either. You’re going to be the best judge of your own situation, but we encourage you to assess it properly. Are you in a line of work that offers opportunity for advancement and long-term employment? Is it an evolving field, or one that’s struggling for relevance?
Can you see yourself continuing to remain in this job or field for twenty years? The experience and contacts you build within your industry may help with a job change, but a career change can take much longer and be a hefty blow to your finances as you juggle a mortgage and your other bills seven or eight years down the line. You might also find yourself with a smaller income after changing careers, even if you manage it relatively quickly, since there’s a chance that you’ll start at a lower position.
Even if you’ve got a great career that you work hard in and expect to continue to do so for the entirety of your working life, some jobs may not be conducive to settling down in one area and purchasing a home. Does your job require moves every few years, or could it potentially require you to move as you advance and go after that promotion you want?
Finally, are you job-hopping? Remember, lenders will assess your employment history as a measure of your risk as a borrower, and changing jobs midway through a real estate transaction is a potential loan-killer.
What about your lifestyle?
How you prefer to live your life, where you are at the moment, and where you think you might be in the future should play a huge role in your decision regarding whether or not to buy a home.
For example, maybe you’re single and love walking from your loft to the coffee shop and taking public transit to work – you might genuinely hate a home in the suburbs. On the other hand, if you’re about to get married and start a family, then a home further away from the city may be more feasible and desirable.
If you already have kids, are the best school districts in your area within reach for you? Or should you wait a few years and go for a home in one of those districts?
Rents are on the rise. Is yours? Would a mortgage be cheaper?
When you examine your long-term finances, be sure to account for rent increases over the next few years. You’ll calculate this according to previous rent increases. If there haven’t been any for you and you’re still in your current lease, check rent listings in the area because yours may be similar when it comes time to renew your lease.
Keeping this in mind, start to ask yourself if it would be cheaper in the long run to pay a mortgage instead of navigating increasing rents. Even if it wouldn’t be right away, it might be in the near future. Remember, your mortgage payment is less likely to change than your rent (obviously, that depends on the exact loan product you choose).
What do you expect to encounter during the approval process?
And this is the elephant in the room. It’s not so much about qualifying or not, but rather how bare your finances will be laid as lenders go through them with a fine-toothed comb. If you expect that you might be surprised at what they find, then you might not be in the best position to buy a home this year because surprises come along during the approval process as a result of you not having as clear a picture of your finances as you should.
This is important, and it should underscore the need for not only financial preparedness on your end, but also having a flawless understanding of where you stand financially. Make no mistake; whatever you don’t know, a lender will definitely find out.
For more perspectives on finance and consumer advice, check back with us each week as we post new blogs and be sure to sign up for our Priority Access List for advance listings and market updates. We’ll see you next week, and in the meantime, don’t forget that you can also keep up with us on Facebook and Twitter!