It is possible to take the emotion out of house buying.
- Unless you’re planning to stay for five years, the best financial move may be to rent.
- No home is worth risking your financial security.
Now is a tricky time to relocate. As someone whose husband recently accepted a job in another state, I can testify to how stressful it can be. At this moment, I have more questions than answers and so many things to take care of that I find myself referring to a list a dozen times a day.
If you find yourself in the same boat, I’m here to tell you that it will all work out.
Get the “feels” out of the way
My marriage has involved moving to nine different states and two foreign countries. Each move has included a period of feeling overwhelmed by it all. And yet, I would not change a thing. With each move, we gained new friends and the kinds of experiences that have changed the way we view the world, making us more open-minded people.
It’s natural to be nervous, though. It’s normal to wonder if your adventure will be more like the Lewis and Clark Expedition or the Donner Party. How it turns out will depend, in part, on your decisions. This includes buying a new home.
So, acknowledge any nervousness you may feel, then put it aside as you try to make the best decisions possible. Before buying a home, ask yourself these five questions.
1. Do I plan to stay?
If you don’t think you’ll be in the new town for five years or more, you may want to consider renting rather than buying. Here’s why:
Let’s say you buy a home for $300,000. If you put 20% down to avoid private mortgage insurance (PMI), that’s $60,000. In addition, you’ll likely pay closing costs of 2% to 3% of the amount you borrow. If you pay 3% closing costs on $240,000, that’s another $7,200.
Now, imagine that you need to move in two years. As the home seller, you’re responsible for more fees. The rule of thumb is to plan on spending around 10% of the sales price to sell your home. This includes all real estate agent fees and closing costs.
In a normal market, you may sell your house for $310,000, paying $31,000 in commissions and fees and leaving you with $279,000. Let’s say that the remaining balance on the mortgage has dropped from $240,000 to $238,000. If that’s the case, you’ll receive a check at closing for $41,000.
You initially paid $67,200 to get into the house ($60,000 down and $7,200 in closing costs). By selling your home so soon after buying it, you will have lost $26,200.
Make sure you plan to be in the home for at least five years before deciding to buy.
2. Have I met someone willing to share the “dirt?”
I fell in love with a really cool six-bedroom log cabin last week. I don’t think of myself as a log cabin person, but I gotta tell you, this is a house I could see our family loving. Fortunately, we’re working with a real estate agent in the new state who’s kind enough to be brutally honest.
He shared what happened to that particular county’s economy and reviewed the nearest town’s economic outlook. The luxury log cabin was so reasonably priced because no one wants to move there. It’s the kind of house we’d better plan to grow old in because no one else is going to want to buy it any time soon.
Find someone willing to share the dirt on the local economy, spill the tea on undesirable neighborhoods, and otherwise protect you from making a huge financial mistake.
3. Am I caught up in the buying frenzy?
We decided that I would remain in our current home while my husband immerses himself in his new job. That means that he’s also the one on the ground house hunting.
Yesterday I found a grand old Victorian online that made my heart beat faster. Seriously. In my mind, it’s my dream house. Because of how quickly properties are selling, we knew that my husband should tour it immediately. Our agent set up a 5:30 pm viewing, and we learned that there was another scheduled for 6:00.
As my husband sat in front of the house waiting for the agent to arrive, he described the exterior to me. I knew to my bones that I wanted it and felt even more sure that it had to be mine when I learned other people were interested.
It turns out, it would take at least $150,000 to $200,000 to repair and upgrade the interior. Our very honest agent told my husband that it would become one endless project.
At one time, just knowing that someone else wanted it might have spurred me into making a truly awful financial decision. Today, I know to question my motivation. Getting caught up in a buying frenzy can easily lead to regret.
4. Is it possible to rent?
I’ve spent the past few weeks hoping we won’t have to rent. However, we’re moving to a college town, and now that school is just about out for the semester, rentals will be plentiful. I may not want to do it, but if renting ends up being wiser than taking out a new mortgage right now, that’s what we’ll do.
If you find that buying in the current market is wrong for you, it’s okay to rent until the right house comes along.
5. How would I pay the bills if (fill in the blank)?
Although I’m an optimist at heart, I plan like a cranky pessimist. Before buying a home, ask yourself if the payment is low enough to allow you to tuck money away into an emergency savings account each month. Make sure you can still cover the mortgage (and other bills) if you or your significant other loses a job, someone gets sick, or another challenge arises.
Yes, these are tricky times for home buyers. Still, the market waxes and wanes, and at some point, we’re sure to find what works for us.
A historic opportunity to potentially save thousands on your mortgage
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