Ought to I Buy a Home Now? (5 Pointers & Good Timing Ideas)

If you move again within a short period—for example, four years—all those fees will dwarf any equity gains you may have. Imagine driving a car off the lot: We all know that it instantly loses value. The same is true of your house, and it takes time to amortize (or spread) the costs.

Most people stay in their house for less than 8 years, and that number is the highest it’s been in several decades! Before the 2008 financial crisis, the average length of time Americans stayed put was around 4 years.

Don’t give in to peer pressure to buy a house if you might not stay there for the long term. If you know you’ll move in fewer than 10 years, you will likely make more money by renting and investing in S&P index funds.

• Common mistake: “I’m not moving for a few years. I should buy so I don’t throw money away on rent!”

• Reality: If you buy for a short period, when you factor in all costs, you will almost certainly lose money.

Your total housing costs should be less than 28% of your gross income, including your monthly mortgage payments. When housing costs exceed 28%, you risk being overwhelmed with expenses if something goes wrong (e.g., an unexpected repair, job loss, etc.) Use the 28/36 Rule to see if you can afford your housing.

Here’s an example:

• Assume you make $10,000/month (that’s $120,000 per year gross or before taxes).

• Assume your total housing costs are $2,000 per month, including monthly mortgage payments. Great! Your housing costs you 20% of your gross income. You pass this test, and you can afford your housing.

• Note that total housing costs include everything: taxes, interest, maintenance, furniture, electricity, water, and even the roof repair 7 years from now (project it).

Evaluating the affordability of monthly payments is crucial in the context of overall financial planning for a house purchase. It helps in assessing whether you can maintain your lifestyle without compromising on other financial goals.

Why gross income? I use gross because it’s easy to calculate. Everyone knows their gross income, and taxes complicate net income (different people choose different deductions). However, if you prefer to use net income, go for it! I love when people create their own points of view on their finances.

If you haven’t saved a 20% down payment, you’re not ready to buy a house.

Why? Not just because of PMI, which is an additional fee you’ll often pay when you get a mortgage without 20% down.

The real reason to save 20% before buying is counterintuitive: building the habit of saving is critical before you buy and have unexpected housing expenses such as a broken water heater, roof, or unexpected taxes.

I frequently get frustrated comments about how “impractical” this rule is. “How am I supposed to save 20%? That will take years!”

Yes, it will—which is exactly why you should save now. Saving is a habit that is better practiced before your mortgage is at risk. Additionally, consulting with various mortgage lenders to find the best mortgage terms and rates can significantly impact your financial planning. The Federal Reserve plays a crucial role in influencing interest rates, which can affect how much you need to save for a down payment, highlighting the importance of understanding the broader economic factors at play.