My wife and I bought our first house in the summer of 2017. Before that we had always chosen to rent for the simple reason that renting was both a better financial decision and a better fit for our lifestyle.
Simply put, buying a house is not always better than renting, no matter how many times you hear otherwise. It eventually became the right move for us, but there were a number of key variables that had to align before we got there.
Still, most of my clients would eventually like to buy a house if they haven’t done so already. Owning a home feels more settled. It feels like something you can make your own. And the reality is that that feeling matters when you’re raising a family.
But how do you know if buying a house is the right financial decision for you and your family? Here are seven important questions you can ask yourself to figure it out.
1. Can you put 20% down?
There are a few big reasons why a significant down payment is a good idea:
I place a lot of value on flexibility. Circumstances change, goals change, and new opportunities present themselves all of the time. I want to put my family in a financial position where we can take advantage of those opportunities when they arise.
A 20% down payment gives you more flexibility, simply because you’re taking on less debt than what your house is worth.
Let’s say you buy a house for $300,000 and a year later you get a dream job offer in another city. Good for you!
But… now you need to move, which means you need to sell your house. And unfortunately the housing market is in a bit of a slump and your house will only sell for around $270,000.
If you hadn’t put any money down, you’d be stuck. You would still owe close to $300,000 on your mortgage, and the proceeds from selling would only cover $270,000 of that. So you would either have to come up with the other $30,000 yourself, default on the loan, or skip the job offer and stay put.
On the other hand, if you had put 20% down up front, you would only owe $240,000. Which would give you the OPTION of selling your house and using the proceeds to completely pay off your mortgage.
Good financial planning is about enabling you to take advantage of exciting life opportunities. A down payment gives you more flexibility to do just that.
Lower interest rate
The more you put down, the less risky you appear in the eyes of a lender.
That leads to a lower interest rate on your mortgage, which means a lower monthly bill and less…