Homebuyers, particularly first time homebuyers across the country are being bombarded with opinions from friends and family, local and network news, and blogs either preaching the virtues or pitfalls of buying a home in today’s real estate market.
But if you’re a first time Houston home buyers, how do you know if owning a home is the right decision for YOU?
How do you know if you can handle the commitment and responsibility that comes with home ownership?
Why don’t you test drive your first home before you buy?
OK, you can’t pick out a house and move in for a couple weeks and see how it fits, but what you can do is try out the lifestyle changes that owning your first home will bring.
In the last real estate boom, too many first time homebuyers attached the same importance to buying a home as they did to picking up the National Enquirer at the grocery check out. It was more an impulse buy than the carefully considered decision it should have been.
No matter how much some industry “professionals” may try to sugar coat it, owning your first home will cost you more each month than renting does and you’ll likely have to make adjustments to your lifestyle and finances accordingly. It may mean eliminating the daily pilgrimage to Starbucks or skipping a weekly night on the town but only you can determine if those sacrifices will be worth all the benefits that owning versus renting brings.
If owning your first home is important here’s a four step process that will help you decide if it’s the right decision for you.
1. Select a target payment – Forget about sales prices, neighborhoods, bedrooms and bathrooms and focus on the monthly payment you would feel comfortable paying each month.
But you have to be realistic. If your dream home has four bedrooms, a modern kitchen and a yard for the kids and dog, you’re not going to have a payment equivalent to the rent you’re paying now for that two bedroom apartment.
It’s OK to stretch a little because as you begin your home search you’re likely going to be looking at homes in a “range” rather than a single price. A practical rule of thumb is try to keep your target payment no more than 33% of your gross monthly income.
Your monthly “nut” is your real commitment and that payment has to be in your comfort zone or you’ll end up being “house poor” and not enjoying all the benefits home ownership can bring.
2. Add the additional cost of home ownership – The additional cost of home ownership is for those things you’ve come to depend on your landlord to pay, that will now be your responsibility, like routine maintenance, upgrading to stainless steel appliances, new paint and flooring.
I would recommend at least $400-$500 additional. Home ownership won’t cost you that much each month generally but there will be times when it will and you should prove to yourself you can handle the unforeseen expenses.
If you selected a target payment of $1300 a month, the additional cost of home ownership runs the total to $1700-$1800.
3. Subtract from that amount your current rent payment. If your current rent payment is $1000, you should be willing to commit an extra $700-$800 month for the costs of home ownership.
If you’re living with mom and dad to save money for a down payment this becomes even more important because going from ZERO housing expense to $1700 will create a shock to your financial and mental well being and your lender will be wondering how you’re going to handle it.
4. Bank the difference – Take the additional $700 – $800 month and put in your savings. What lifestyle changes will you have to make to accomplish your goal? No one can really answer that but you.
It’s going to require discipline, but so does the responsibility of owning your first home.
This is not a one or two month plan. Test drive it for as long as you need, but I would recommend at least 4-6 months.
Three very good things will come from “test driving” the home ownership lifestyle.
1) You’ll have a better idea of what owning a home truly costs
2) Your lender will know that you have demonstrated an ability to save, which will make them feel better about your loan approval.
3) You’re going to have more money in the bank, which in this economy is a very good thing.
You might find that you’re not yet ready to make the lifestyle adjustments that home ownership brings. It’s better to find out during the “test drive” than to find out after you’ve moved in.
Owning a home you can’t afford does have a return policy, it’s called foreclosure and the cost to you far outweighs the extra effort beforehand.