Yes, even though we are in the business of selling homes, we are also in the business of advising our clients to make wise decisions with their money. After all, a home, for most, is the most expensive asset they will purchase.
[alert style=”1″]I am not a financial advisor, nor am I an attorney, but I do have a fiduciary responsibility to my clients.[/alert]
There are many costs associated with buying a home. Most people, when they think of buying a home, think only of the payment and they compare the mortgage payment to their rent payment, often seeing that the mortgage payment will be less (market conditions dictate whether or not this is true at any given time.) By doing this, it’s very easy to say that owning is less expensive then renting. In the long term, they are absolutely correct. Owning is a great benefit.
However, owning comes with greater responsibilities. There are costs associated with owning a home that many people don’t think about. These are called deferred maintenance costs. Deferred maintenance costs should be planned for by using a sunk cost method of budgeting. For example, if you know you’re going to need to replace a $10,000 roof in 5 years (that’s 60 months) then you need to be saving approximately $140.00 per month and that money needs to be invested in growth stock mutual funds earning no less than 8% on average over the next 5 years just to cover this expense.
If you buy a house using ALL of your savings for your down-payment and closing costs basing your decision solely on the fact that your monthly payment is “affordable,” and you #fail to consider the potential costs of deferred maintenance and/or emergencies that may occur in your life, then you are effectively removing sections of the track that your financial train is headed down.
It is unwise to purchase a home while you are carrying debt. It is unwise to purchase a home without having at least 3-6 months reserves left over after all costs are paid. It is unwise to purchase a home with a partner without clear partnership terms in writing (a very difficult task indeed.)
Don’t derail your financial future by purchasing a house before you are absolutely financially capable of doing so.