Financial considerations for the future: buying a house

Are there reasons to put off buying a home even if it’s something you want? Here are a few things you should consider when thinking about being a homeowner.

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The American dream, as we’ve always known it, is to find yourself in your own house with a white picket fence. That’s how you know you’ve made it. But is a purchase as immense as your own home a good financial decision for everyone? Are there reasons to put off buying a home even if it’s something you want?

Here are a few things you should consider when thinking about buying a house:

Are you the home‐owning kind?

Owning a house is a huge commitment, and it isn’t one to go into lightly. Think about the kind of person you are first. Have you moved a lot in the past and plan to again? Do you spend more time traveling than you do at home? Do have a desire to put down roots? Do you want a family?

Avoid the “I can always sell it when I’m ready to move” mindset. Selling a house is not always easy or quick, and it can often be expensive.

Are you in debt?

Buying a house, in most cases, means taking out a mortgage—AKA putting yourself into hundreds of thousands of dollars of additional debt. If you’re already struggling to get yourself out of debt, taking on a mortgage is never a good idea.

If you took out student loans, make sure those are paid off completely before you start talking to realtors. More reasons to pay off or avoid student debt can be found here.

Can you afford the down payment?

Many states and banks have programs to help first‐time home buyers, including lower than average down payments. A down payment can be as low as 3% of the cost of the loan. However, a higher down payment, say 20%, will give you a much more favorable loan.

Also, remember that banks are a business and may not always have your best interest in mind. Just because you can qualify for a large mortgage does not mean you should take it.

Can you afford the other costs?

Buying a house is expensive, and that’s not just for the house itself. Your insurance will go up when you switch from renting to buying. You’ll pay real estate and property taxes. Broken appliances and home repairs are no longer the landlord’s problem. And don’t forget about the closing costs. It costs roughly 4% of the price of a home to close the sale.

Plus, a house is only a house until you make it a home, right? Making your new house look and feel the way you want it to—new flooring, paint, window treatments, furniture—is estimated to cost as much as 25%–35% of the home price.

Will buying a house get in the way of retirement savings?

If taking out a mortgage and covering all the expenses of owning a home means you have to take a break from saving for your future, do not do it. Renting may not be your favorite option but remember what it is saving you: maintenance, property taxes, insurance, and interest on a home loan.

The money you can save while renting can be put toward your retirement planning. If you’re in a financial situation where you can afford both, then you can consider buying.

The lesson:

Buying a house may seem like the next step, but there are a lot of things to consider before making such a large purchase. Before you call a realtor, make sure you can afford not only the mortgage payments but also the additional costs while continuing to save for retirement.

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Article copyright 2019 by Eric Brotman from Forbes. Reprinted from March 19, 2019 issue with permission from Forbes.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
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