Buying a home is typically the largest purchase one makes in their lifetime. Given how high the stakes are it is wise to go into this decision with a plan to make sure that the home doesn’t end up owning you.
First, a prospective homebuyer needs to be completely honest with themselves about their financial situation, the costs that come along with owning a home, and be clear-minded of any wishful thinking.
It is human nature to want something and not fully examine the possible downsides of it due to blind faith everything will work itself out in the future. This concept is true for many things in life, and it is no different when someone is in the market for a home.
Although that blind faith may be useful in some situations. It is safe to say it is the wrong approach when making a decision of this size, and can cost someone a lifetime of financial stress. It is a certainty something will break, and if the monthly mortgage payment is too high to budget for those expenses. The home will not go up in value, continue to fall apart, and leave someone working their butt off paying for it. Keeping this person in a perpetual state of stress and unrest. All because they wanted a house and chose one they couldn’t afford years ago.
This is why we advise buying a home only when one can comfortably afford it. We consider comfortable as:
- At least 20% down payment on the home.
- Monthly mortgage payment is 25%-35% of one’s monthly income.
This allows room to save for major repairs and updates to keep up with the home. Put money into a retirement account every month so you have a separate retirement fund working for you and will one day be able to retire. Not 100% reliant on the sale of your home to retire. And enough money left over to live a comfortable day-to-day life. Avoiding the daunting fear of paying the mortgage on a home that is falling apart every month.
A real all-star move is taking any extra income one might find themselves with and using it to pay down the principal balance of their mortgage. Doing so can save tens of thousands of dollars in interest if done consistently. The larger the downpayment and the quicker the principal balance is paid off the less is paid in interest. This means less money to the bank you will never see again!
