“You’ve got to go out on a limb sometimes. That’s where the fruit is.” – Will Rogers
You are young and either living at home or paying rent. You are young and have known nothing but a bad housing market. You are young and may have student debt and stagnant income. That doesn’t mean you can’t buy a home. Once you acknowledge your situation use your internal locus of control to take control of your situation.
Four Tips for Your Financial House
1. First assess your income and savings. Those numbers will tell you what you can afford to buy. If you are paying rent of $1,300 that’s a starting point (by the way, $1,300 in rent is the rough equivalent of a $1,500 mortgage payment).
If things are tight financially, assess what you can do about it. If you review your expenses you will find areas to save money. I review my expenses annually. This past year I found areas to save – annually – $480 on my auto insurance; $240 on cable; $120 on phone and $2,000 on an insurance policy. I also use my bicycle year round which saves money in the short run and we hope the long run as regards health expenses. There are ways to save.
Fun link on the cost of driving: http://www.1kfriends.org/posts/commutecalculator/
2. Another example: Buy a 3-year-old car instead of a new car. New cars lose the majority of their value in the first 3 years of ownership. If you plan on buying a home, it is always better to delay a car purchase until after you purchase a home. A new car loan can be a significant drag on your mortgage loan approval.
3. Next, contact a lender and find out what your credit score is. Your credit score will dictate whether you get a loan and the interest rate you pay. If your score is 740 or higher, that’s good. If your credit score is below 740 then get to work to clean it up. A good lender can suggest how to clean matters up.
4. Once you have a sense of what you can afford and what you want to afford, look inward. My counsel would be to not make it a competition (and I like competition) with the Joneses. It is human nature to compare ourselves and our situation with others. Our society draws comparisons based on the clothes you wear, the type of car you drive, where you live and what you live in. It’s human nature.
I’d kick that Jones stuff to the side and focus on a place to live that is affordable which you can make your own and over time build equity. Other things to consider:
Ask yourself how long you plan to live in the home. If your answer is less than 5 years, keep renting. If you are unsure but believe it will be for 3 years or more, then consider buying. This sounds contradictory. It is not. It addresses the “unsure” part for those who are unable to make a decision. Is your location preference close to work, friends and hobbies you enjoy?
I will return to my original premise for home ownership, it builds equity. Rent does not. Like fruit selection, you have choices but you have to take modest risk (climb out on the limb) to reap the benefits.
If this post leads you to more questions, you buy the cup of coffee and I’ll provide the information and guidance.