By Darrell Bryant
Although the concept of the American dream has changed somewhat over the years, one thing that never changes is the goal of homeownership. Whether or not it’s the stereotypical two-story home with a green garden and a white picket fence, your home is the symbol of financial independence and adulthood.
While owning a home is a fantastic accomplishment for anyone, I’m sure you’re already aware that it is serious business and is no easy feat. Not only does it take a large investment of money, but it also involves a lot of smart financial moves and good decision-making to land the right home at the right time. Depending on where you are in your life, it may be better to rent rather than own.
Ask yourself the following questions to determine whether you should pursue homeownership or continue renting.
When Will You Relocate?
Closing costs and real estate commissions will usually consume about 7% to 15% of the sale of a home. (1) This is why experts typically advise prospective home buyers to only buy homes if they plan on living in an area for a minimum of 5 years, as it is long enough to break even before selling the home. If you plan to live in your area for less than 5 years, for work or school, it would be better to rent rather than own as you would be free to move at a moment’s notice and would not be tied down financially.
What Can You Afford?
Owning a home is not cheap. First, you have to look at how much money you need for a 20% down payment. Then you need to consider your monthly mortgage payments and utility bills, as well as other expenses such as homeowners association fees, insurance, and home improvements and upgrades. Add up all of these numbers and compare the final price tag to what you currently have in your financial portfolio. If the price is too steep, then it is best to continue to rent and build up your finances in the meantime.
What Does Your Savings Account Look Like?
To qualify for a 30-year conventional home loan, you will need to put down at least 20% of the price of the home. If you find that you have enough money for a down payment but not enough left over for an emergency fund, then it is best to not move forward with a home purchase. Your emergency savings should be your top priority, as you will always need to be prepared for a rainy day whether you own a home or not. The rule of thumb for emergency savings is to have enough money saved up to cover 3 to 6 months’ worth of expenses.
If your savings account has more than enough money to cover emergencies and a down payment, then go ahead with homeownership. If not, aim for the emergency fund first and then make a plan to save for a down payment.
How We Can Help
We know it can be very exciting, but buying a home isn’t something you want to rush into or take lightly. If your heart is set on becoming a homeowner in the next few years and you’d like to put together an effective action plan, my team at D. Bryant Retirement Strategies is ready to assist you. Call us at (402) 932-2141 or email email@example.com. We would love to help you realize your American dream.
Darrell Bryant, CFS®, CAS® is Omaha’s Retirement Strategist. As the founder of D. Bryant Retirement Strategies, he focuses on helping individuals and couples nearing retirement do so successfully. Along with more than 30 years of experience, he received the Certified Fund Specialist (CFS®) designation and a Certified Annuity Specialist (CAS®) designation from the Institute of Business & Finance. Passionate about helping as many people as possible in his community, he hosts Retirement Strategies Radio, heard Saturday mornings at 8:00 a.m. on 1110 KFAB. He has also written articles on financial planning that have been featured on Fortune.com, FoxBusiness.com, Money.com, and in the Midland Business Journal. To learn more, visit his blog, his website, or connect with him on LinkedIn.