First time home buyer; Is it right for you?
There are dozens of economic advantages and a warranted feeling of security with being a first time home buyer. Currently, it’s a purchaser’s market as interest rates are still low, hitting 3.73% for a 30-year fixed mortgage this month. It seems like a good time to buy, right, millennials?
However, being a first time home buyer may not be suitable for all. For all of the optimistic reasons for being a home owner, there are some very compelling justifications to not buy a home. What are these reasons you may be asking yourself?
Here are some reasons to be hesitant to purchase your first home:
Loss of Flexibility
Want free money?
Owning a home and being a first time home buyer provides a sense of stability and very likely will feel a sense of security even though this may not be a good thing for you. Millennials are in their career building years. Let’s say you are currently underpaid and the only way to climb the career ladder is to seek new employment in a new city. Or, you may want to switch fields you might have to relocate to get to that next stage. You need to have the capability to relocate on short notice, maybe even as fast as 2 to 3 months. Having to sell your home rapidly would force you to offer it up at a loss in order to get rid of it quick, in addition to incurring 1000’s of dollars of closing costs.
No Room For Youngsters
Millennials are within the prime years for starting a family and thus being a first time home buyer makes sense, right? You may not have a family now, but probabilities are you may in the near future. So, buying that cozy dwelling or condo perfect for the 2 of you is probably not a good idea when little one makes three. Having to sell your house to buy a larger one with a due date looming can also be unbearably worrying, expensive, and may even cost you a large amount of money.
Fives Years In
If for any reason you think you may not be able to stay in your home for five to seven years, you should not buy. It will be cheaper to rent. The rule of thumb used to be seven years, but now that the housing market is stabilizing, that timeline has shifted slightly. With only moderate market appreciation, it will generally take five years for you to recoup the costs of buying, selling, and carrying costs. Unfortunately, in the first years of your mortgage, you won’t be building up too much equity. Banks charge a hefty portion of your interest upfront, with very little going to your principal in the first few years.
No Money Down, No House
If you don’t have enough money saved for a down payment, don’t be a first time home buyer. I am a big proponent of 20% down. That is not always feasible for most Millennials starting out, and it is lot of money to have saved up. But, unfortunately, it is the safest, most conservative approach to home ownership. If you can’t bank on Mom and Dad for a leg up on the down payment, then you need to keep saving
Too Much Debt
Student loans, car loans, and any other debt you have accumulated are all reasons not to buy a house just yet. You will need to pay down your debt first. Not only will a being a first time home buyer put a dent in you debt reduction plan, banks will not be willing to approve you for a loan with a high debt-to-income ratio.
Shaky Job Security
First, purchasing a home with today’s new qualified loan standards requires some consistent job history. When you’re in the early stages of your career, there may be jumps and gaps in your history, so getting the loan is going to be a challenge. Once you own a home, be aware that job situations can change overnight. Losing a job, periods of unemployment, and changes in income are not as easily weathered when you own a home. Your income may change, but your housing costs will remain the same. You won’t be able to quickly downsize, leaving you to sell your home out of financial desperation.
Being a first time home buyer often leaves buyers cash poor. After you dip into your savings to come up with the down payment, the closing costs, and any renovation that you need to make prior to moving in could leave your bank account in the double digits. That is not the way you want to start living the ‘American Dream.’ Make sure you will have enough cash leftover to weather a job loss, an unexpected emergency, or even a health issue that could impact your earning power.
Don’t end up house rich, cash poor and emergency fund-less.
Still not convinced and want to see if you would qualify for a mortgage? You can easily compare offers from up to 5 mortgage lenders at LendingTree in just a few minutes!