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A home is one of the biggest purchases most people make in their lifetimes. However, there’s often no real guidance on how you should buy a home and when is the right time to do it. Many people make the mistake of buying a home that isn’t right for them because they feel pressure to buy, either from a real estate bubble or because they’re having a baby.

Buying a home is a major decision that could impact your finances for many years. These tools and tips can help you to not only choose a home that is affordable for you but also avoid costly mistakes.

Before you consider buying a home, it’s important for you to have a solid financial foundation first:

  1. No consumer debt
  2. Adequate emergency funds
  3. Savings for a home down payment in addition to the emergency reserves

The Benefits of Home Ownership

There are many benefits to owning a home. The mortgage for your home acts as a forced savings plan. When you pay your mortgage each month, some of the loan’s principal gets paid down as you gain more equity in your home. Your home can also act as a hedge against inflation because your mortgage payment stays the same even if the price of your home increases. If you’re renting, in the same situation your rent would increase. Depending on your location, your home may even appreciate in value over time.

Why Is This Important?

There can be a lot of pressure to buy a home. This pressure can come from family, from society, or from the current housing market. It’s easy for people to succumb to that pressure and buy a house when they’re not ready for it. A home should be an investment that adds value to your finances over time. However, if you buy a home without having a solid financial foundation first, you may end up losing a lot of money on the home.

It is perfectly okay to rent for a while as you build a solid foundation! Renting takes away a lot of the unexpected financial setbacks that can occur if you own a home. For example, if you are renting and the roof leaks, you just call the landlord. If you own and the roof leaks, you’re facing an unplanned $15,000 roof replacement expense.

If you wait to buy a home until after you have a solid financial foundation, then your home can be a blessing rather than a burden.

Tips for Buying a Home

Most people use a realtor when buying a home and that can be a very good thing. A realtor is a professional who knows the ins and outs of the real estate market. Plus, a realtor will have to work with a mortgage broker for approval. However, a real estate agent or a mortgage broker may provide biased advice because they’re incentivized to sell more expensive homes.

Characteristics to Look for in a Home

Good location with good schools. If you have children, good schools will be an important factor in your search for the right home. Even if you don’t have kids, you should still look for a home in an area with good schools. This will give your home a higher resale value should you later choose to sell.

Price at the lower end of the neighborhood’s value range. Every neighborhood will have a range of home values. You should look for a home that is at the lower end of that range within the neighborhood that you want. Homes at the lower end have room to increase in value while homes at the higher end of the neighborhood’s value range may instead decrease.

Consider cheaper home options. If you can’t afford a single-family home, there are other options for homebuying. You could look for a townhome or a condominium, although you would need to budget for maintenance fees or higher HOA dues. Those fees and dues can go up over time. If you’re handy, you could also look for a fixer-upper, although you should be cautious with any major repairs such as electrical, plumbing, roof, or structural repairs.

Stay tuned for the next blog in our homebuying series! Our next blog and video will cover: How Much House Can You Afford?
 

 

 

Important Disclosures: The information provided here is of a general nature and is not intended to answer any individual’s financial questions. Do not rely on information presented herein to address your individual financial concerns. Your receipt of information from this material does not create a client relationship and the financial privileges inherent therein. If you have a financial question, you should consult an experienced financial advisor. Moreover, the hiring of a financial advisor is an important decision that should not be based solely upon blogs, articles, or advertisements. Before you hire a financial advisor, you should request information about the financial advisor’s qualifications and experiences. Past performance is no guarantee of future results. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Examples provided are for illustrative (or “informational”) purposes only and not intended to be reflective of results you can expect to achieve. AllGen Financial Advisors, Inc. (AllGen) is an investment advisor registered with the SEC. AllGen does not provide personal financial advice via this material. The purpose of this material is limited to the dissemination of general information regarding the services offered by AllGen. The Disclosure Brochure, Form ADV Part II, which details business practices, services offered, and related fees of AllGen, is available upon request.​