Business Insider recently came out with a flowchart on whether or not you’re financially ready to buy a house. And while I’ve never known anyone to make a decision off a diagram before, my older self could have greatly benefited from it :)
Here are the 9 questions it forces you to think about, along with how I would have answered them myself back in 2007 before picking up that fateful house… They’re actually pretty good questions!
#1. Do you plan on being in this home for five or more years?
What? No way – I love to move. 5 years is a lot!
#2. Do you have an emergency fund?
#3. By the time of purchase, will you have enough cash saved for a 20% down payment plus fees? 20% of…. $1,000? :)
#4. Are you saving for other major goals?
Well, we will be getting married in about a year and I don’t have any investments saved up yet, so…
#5. Will buying a home wipe out all your savings?
Nope! Because I’m financing it 100% – BOOM!
#6. Can your budget handle not only your mortgage but also the taxes, maintenance, and incidental costs on a monthly basis?
Surprisingly, yes. We both have solid jobs and I don’t foresee anything bad happening at all with the economy. It’s not like real estate prices would ever go down or I’d get laid off or my wife would go back to school leaving us without an income. That would be crazy!
#7. Do you have a credit score in the mid-600s or above?
We do! Believe it or not, we’re actually great at paying stuff on time and not racking up major debt.
#8. Have you lived in the area before?
No. First time here, actually – we made a wrong turn and got lost! (<– True story. We meant to rent an apartment and ended up buying a 3 level townhouse on a whim. Whoops.)
#9. Are you willing to be your own super (or pay someone else to do it)?
Sure, can’t be that bad, right? You just pay someone to come over and fix stuff every few years?
As you can see, I would have failed this test miserably :) 5 of our answers pointed directly to “rent” instead of “buy,” giving us 5 solid reasons to walk away and not pull the trigger.
But of course we did, and now here we are 9 years later still soaking up the lessons from it! You know, like never putting down $0.00 for a down payment, making sure to at least have something resembling a budget, and the ultimate whammy – never purchasing the biggest item of your life just because everyone says it’s a smart thing to do!
Fortunately, years later it did turn into a pretty smart move (it got this blog up and running which completely changed my life and my career and all of my friends! *Waves to all you fine people out there*), but double thinking things never hurt anyone before. In life or in money.
So if you know anyone thinking about picking up their first house, or you’re thinking of doing it yourself, please please PLEASE have them go through this flowchart first!
Here it is again: Buy a Home or Continue Renting?
I’d love to have seen more lifestyle questions in there, like “Are you moving closer or farther from all of your friends and family?” or “are you SURE you’re ready to “settle down” and give up some freedom?” but as far as financial exercises go, this is one of the best ones I’ve seen in a while.
Let me step down now though, and let some of you homeowners chime in… Seeing how I’m biased ;)
If you own a home right now, are you happy with the decision so far, or do you wish you would have changed something? If you went back in time and answered these 9 questions above, how would you have fared? And would it have mattered?
No right or wrong answers here, as always, but still good to keep it real with ourselves no matter how our decisions play out… And fortunately, rarely are things irreversible!
PS: For all new readers to the site, we ended up selling our house in January of this year and are now back to renting blissfully again… You never know what the future holds, but should we go down this path again you better believe we’ll be coming back to this checklist!
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!