Transforming from a renter into a homeowner is easier said than done. We all want to own property, but for today’s millennials is it a feasible concept to own a house rather than rent?
Since the financial crisis a few years ago, it has become a lot more difficult to purchase a home, particularly for those in the low- to middle-income ranges. Borrowers have imposed stricter lending standards, but incomes have failed to keep up with the cost of living, and the national economy has become too unstable to even consider placing yourself into $400,000 mortgage debt.
Despite the various cautionary tales, some millennials just want to buy a home because they feel it is a worthwhile long-term investment and they have been urged by their parents to enter the real estate market. Also, personal finance experts regularly purport the virtues of owning a home instead of renting an apartment.
If you’re in the market for a home, you must ask yourself: am I ready to move forward with the biggest purchase of my life? There aren’t any preconceived items on a checklist, but a little bit of common sense can do a good job of answering this important question.
"One of the things I hear most often is that people what to buy their own homes because they want to put down roots in a community," wrote personal finance guru Gail Vaz Oxlade in a blog post. "Hey, if you have the ’will’ to move from renter to home-owner, that’s the first step. The second step: having the ’means.’"
Here are five ways to know if you’re ready to buy a home or if you should stick to renting:
1. State of Your Career
Indeed, the labor market is on a rollercoaster ride and is currently in a volatile state. What about your labor force participation? Do you have a steady career? Have you worked at your job for at least two years? What kind of profession are you in? These are prudent questions to answer because someone working at a fast-food restaurant shouldn’t be buying a home compared to a three-year professional engineer making $80,000 per year.
2. State of Your Personal Finances
Let’s be honest: are you a saver or a spender? Depending upon how you answer that will likely determine if you should buy a house or not. A saver can set aside money for a leaky roof, a bathroom remodeling and a down payment on the house. A spender, meanwhile, will have a difficult time scrounging up enough money just to pay the electricity bill.
If you are good with money and always put 10 to 20 percent of your income away for a rainy day, then you can certainly be a homeowner.
3. State of Your Debt
No consumer debt? Well, you have something in your favor to acquire a home. Unfortunately, all credit card debt, student loan debt, lines of credit and perhaps even automobile loans should be paid off before you start seeking out property. Consumer debt is the bane of anyone’s existence and it should be eliminated altogether as soon as possible.
4. State of Your Personal Life
If you’re a bachelor and you plan to be for the rest of your life then is buying a three-bedroom house a necessary endeavor? On the other hand, perhaps you have a fiance and you plan to have a couple of children after you get married. The ladder would certainly be a great reason to buy a house. A lifetime bachelor should refrain from acquiring a house while a family man should definitely take it into consideration.
5. State of the Housing Market
Finally, the state of the housing market is the final factor to take into account when deciding whether or not you want to purchase a home. In the U.S., for instance, the housing bubble is quickly forming (again), and it’s likely the prices will crash again. In Canada, as another example, the Bank of Canada has helped rev up the real estate market and has been complicit in artificially driving up property values. There are so many markets where it’s overheated that it will destroy families when the price collapses.
Perform your due diligence and compare the price of a home over the past decade.
Converting from a renter to a homeowner is a huge leap for any person. A renter just has to worry about paying the monthly rent for the unit, while a homeowner has to earn enough to pay for the mortgage, utilities, property tax, maintenance and emergencies. If you think you have what it takes to own a home, you are fiscally prudent and personally stable then take that giant step forward.
Whatever the case, here is one final bit of advice: be sure to have more than the five percent minimum down payment. Try 15 to 20 percent.
Have you recently tried unsuccessfully to get onto the property ladder? Did the bank dive you a good excuse? Your thoughts and comments below please...