“Here lies Walter Fielding. He bought a house, and it killed him.”

This quote, from the mouth of Tom Hanks’ character in the 1986 comedy The Money Pit, might sum up the homeownership experience of millions of Americans: disenchanting, frustrating, expensive. And possibly ruinous.

The American Dream promises that anyone willing to put in hard work has a shot at a better life than their parents. But I believe the archetype of the American Dream has traditionally included certain material trappings: a reliable car, family vacations, and of course, one’s own home, ideally encircled by a white picket fence.

Of course, this archetype is changing, and rapidly.

Older generations criticize younger Americans for nearly everything. But the Millennial-inspired trends of delaying (or eschewing altogether) marriage and suburban homeownership in favor of balanced careers, travel, and more sustainable urban lifestyles are factors likely to particularly draw the ire of your curmudgeonly uncle.

Of course, it’s easy for us younger Americans to see a new reality. In an era of stagnant wages, ballooning education costs, and student debt burdens, prohibitive healthcare costs, disappearing benefits, and the specter of climate change threatening future generations’ very existence, why would all of us knowingly chase a materialistic dream involving an expensive and inefficient suburban McMansion that requires two gas-guzzling cars in order to commute many smoggy miles in soul-crushing traffic to a meaningless corporate job?

According to a survey by Bankrate conducted in January 2019, nearly half of all homeowners have buyer’s remorse. Among all homeowners, 44 percent have some regrets. Among Millennials, however, the number of homeowners with remorse rises to a shocking 63 percent.

Although homeowners have regrets for different reasons including, for example, buying a home that’s either too large or too small, the number one reason for regretting the purchase was that maintenance and other costs involved in owning the home turned out to be more expensive than expected. Ah, The Money Pit.

In the sections that follow, we’re going to take a look at three of the most pervasive myths in American real estate: That homeownership makes you happy, homeownership makes you wealthy and, finally, that renting makes you a sucker.

Afterward, we’ll take a look at a few exceptions and lay out some best practices you can use — whether you’re a prospective buyer or current homeowner — to make the best decision possible or, at least, make the best of an ambiguous situation.

This is a long, in-depth article. It could take as much as 45 minutes to get through. Stick with me though, it’s going to be an interesting read!

Myth 1: The myth of the happy homeowner

If you have any doubt that popular culture is selling us a vision of home-buying bliss, spend an hour watching any number of TV shows on HGTV and dozens of other networks such as “Fixer Upper”, “Home Town”, “Property Brothers”, “Love It Or List It”, and so on.

These shows feature unusually attractive hosts with various backgrounds in real estate, construction, and interior decorating helping wide-eyed homebuyers buy, and often renovate, the perfect home.

Like all reality television, I believe these real estate shows paint a picture of homeownership that’s unrealistic at best and dangerous at worst. As someone who has owned three different homes and renovated part of one, these shows infuriate me for many reasons.

Renovating a home is INCREDIBLY expensive

First of all, most shows feature young couples with head-scratching budgets. (How, exactly, do these 26-year-olds in a ubiquitous American small town have $800,000 to drop?) We rarely find out and are instead left wondering if they’re genuinely that successful, if there’s a trust fund involved, or if they’re simply making the potentially catastrophic decision to overspend.

Next comes the illusion that gutting a home to its studs and rebuilding is a job that can be completed in a few weeks on a laughably modest budget. The renovation costs quoted on these shows are routinely half — sometimes less — of the quotes we receive for similar projects.

I’m willing to concede that I live in a region with a small pool of contractors and higher construction costs. Still, the quoted remodeling costs on these shows are insanely low. Never mind that the production companies furnish 24/7 work crews to complete the projects in a tenth of the time the average homeowner might be able to.

There are always hidden costs

If there’s one shred of reality in these reality shows, it’s that the hosts frequently return to the buyers with a long face and the words “so there’s some bad news.”

Surprise, surprise, there are almost always hidden costs lurking within the walls of an aging home. They might range from a couple thousand dollars to replace a rotted subfloor to tens of thousands to correct a structural issue or rewire an entire home with dangerous electrical work.

Home improvement shows don’t show us the reality of the situation

Aside from these faults I find with these shows, the shows are even more misleading because of what they never show us:

  • The homebuyers collaboratively deciding how much to spend on the home
  • How much of the purchase price the homeowners will need to borrow, and how much the corresponding mortgage payment will affect their monthly budget
  • The costs of hiring designers and general contractors to oversee the renovation. (Clearly, the tv shows probably cover this expense. But it’s a very real and very significant cost to anyone not willing to do everything themselves.)
  • When things go over budget, where the money comes from?
  • What happens after the show wraps? Does the construction hold up? It’s frequently obvious that the renovation makes a portion of the home Pinterest-perfect, while leaving other sections of the home (sometimes an entire level) untouched and unphotographed. What other repairs lurk there? What will it cost to maintain the newly-installed landscaping or renovated pool? How much will the renovation increase the owner’s property taxes? (Assessments, after all, fluctuate with the condition of the property.)

Now, we’ve got more important things to cover here than debunking the notion of reality in reality TV. But I call out these home improvement TV shows to illustrate the illusion of the happy homeowner gleefully choosing paint and fabric swatches without regard to the other obligations of everyday life, let alone financial reality.

How homeownership affect our happiness

It’s been shown time and again that more money does, in fact, make people happier…but only to a point. There is an amount of annual income with which people are measurably happier than people earning less. The exact amount changes regionally with the cost of living and over time with inflation, but I’ve seen it described as anywhere between $45,000 and $70,000 a year.

With any amount of income above this amount, happiness continues to increase gradually, but it quickly plateaus. It could be said that someone earning $150,000 a year is slightly happier than someone earning $70,000 a year, but someone earning $1 million a year is almost imperceptibly happier than someone earning $150,000, and resultantly, only marginally happier than the person earning $70,000!

And yet, that person earning $70,000 is a great deal happier than someone only earning $20,000 a year.

This shouldn’t be a huge surprise. It’s easy to imagine the sacrifices and anxieties of living near or below the poverty line ($25,750 in 2019 for a family of four). Yet, I think we all assume that we’d be happier with more income than we have today.

This psychology manifests itself when we buy a home. Surely, we’d be happier with a nicer neighborhood, a two-car garage, a bit of a back yard, an extra bedroom to use as an office, a finished basement.

But where does it stop? Would we be happier with a high-end kitchen, with an acre of privacy, with a pool? What about a complete home-gym, a game room, or a movie theatre?

Let’s use me as an example

If you doubt me, let me explain that I’m living proof of this fallacy. The success of certain parts of my business has rapidly increased my family’s wealth over the last 10 years. And we’ve moved twice.

The first time, we moved from a modest home in a dense neighborhood (no privacy, no garage, for example) to an average home in a more upscale neighborhood. This second house had a nice location with a bit of privacy and a garage, but it was also an old house in need of repairs, and we sunk a lot of money into it.

Finally, it was the prospect of sinking a lot more money into that house that led us to our current home which, admittedly, is way more than we need. But it was also the house that met all our wants and saved us from spending hundreds of thousands of dollars more in turning our former house into what we wanted.

Perhaps I’m living an example of what I’m suggesting you think twice about. There are many days I dream of having less house to maintain, to clean, to pay property taxes on. But I’m also in a position to purchase the house without a mortgage and to afford the taxes and maintenance.

Does owning a nice home make me unhappy? No, definitely not. But does it make me any happier than owning a modest home or even renting a modest condo? Probably not. While there are definitely perks to having the privacy and upscale amenities in our current home, I’ll tell you that any increases to happiness those bring me are offset by the expenses and maintenance obligations.

One more example

I have yet to see as poignant of an example of this absurdity as in Season 4, Episode 3 of Arrested Development, in which Tobias and Lindsey decide to buy a home with the help of a realtor named James Carr, played by Ed Helms.

Lindsey and Tobias explain to Carr that they have no assets, no income, no credit and, honestly, no work ethic. Not a problem, Carr explains to them. He’ll get them a NINJA Loan (No Income, No Jobs or Assets). They end up buying a 10,000+ square foot McMansion with not one, but two gatehouses.

It’s a painfully funny scene in part because it’s not as much of an exaggeration as it seems. This kind of thing happened every day in the years leading up to the mortgage crisis and the subsequent Great Recession of 2008.

While today, new federal laws and lending guidelines might limit the most egregious predatory mortgage lending, realtors and mortgage brokers continue to coach buyers into too-expensive homes because there is no incentive not to.

Realtors and mortgage brokers earn their commission at the date of closing irrespective of whether the buyers can make even their first mortgage payment. Even the banks originating the loans might not care because they frequently turn around and sell the loan within 30 days.

It’s important to remember all this when you’re watching HGTV or going on showings with your realtor. A good realtor will listen carefully to your budget requirements and work with you to stay within them.

But you must never forget that there are multiple industries (real estate, construction, entertainment, home furnishings, home improvement retailers) spending billions of dollars each year to influence you and make you believe that buying a larger home, a newer home, or a prettier home will make you happier.

Spoiler: It won’t. And it just might do the opposite.

Myth 2: The myth of the wealthy homeowner

There’s a good chance you know someone – perhaps a parent or another relative – who brags about buying their home 30 or 40 years ago for $100,000 (maybe less) and how it’s appreciated to a half-million dollars, or maybe more. These people may also be the ones giving you well-meaning advice like “stop throwing your money away on rent” or “buy a home as soon as you can, it’s the key to financial success!” 

Unfortunately, they’re not telling the entire story. To be fair, it’s not their fault; they don’t realize, per se, they’re giving bad advice.

Real estate appreciation doesn’t always mean money in your pocket

In most cases, real estate does appreciate. And, over many decades, that appreciation appears to be significant.

But, here’s the thing: Over time, the value of a dollar decreases due to inflation. And, when people brag about how much something has appreciated over multiple decades, they almost never stop to point out how much they would’ve paid for the house in today’s dollars. If they did, the numbers aren’t going to sound nearly as dramatic because, well, they simply aren’t.

To illustrate this point, here’s what the Case Schiller U.S. Home Price Index looks like before being adjusted for inflation. (The Case Schiller Index is the most widely-used benchmark for home prices nationwide.)

Case Shiller

Case Shiller

Sort of impressive, right? If you purchased a home around the year 2000 and it appreciated similarly to the national average, the home’s value would have doubled in about 20 years. During other 20 year periods in the last 120 years, values have risen even more steeply.

But here, take a look a look at what the index looks like adjusted for inflation.

Case Shiller

Case Shiller

The inflation-adjusted chart looks a lot different than the first. You should immediately notice two things:

  1. The dramatic appreciation, and subsequent crash, of home values leading up to and following 2005; and
  2. the long periods of relative minor fluctuations in value.

The lesson here is that real appreciation depends not only on home prices but on home prices in relation to inflation. While real appreciation is possible (see 1998 to 2005 and 2012 to today), it’s much less common (and much less dramatic) than we believe when we don’t take inflation into account.

When I look at buying my own homes, I look at equity as an inflation-protected store of value. I feel confident that I should be able to recoup what I paid for my home in inflation-adjusted dollars. Having home equity is better than having money in a savings account, where interest rates rarely keep up with inflation, but I’m not counting on it to build wealth by generating returns above and beyond inflation.

Now, I might get lucky and end up selling in a bubble similar to 2005, but I’m not going to bank on that happening any more than I can bank on winning a Powerball jackpot.

I’m going to sell my home when my personal circumstances change and I need a different living situation.

Makes sense, right? Your house is a home, not an investment. A house provides utility (a place to live). It doesn’t provide income (unless you eventually own it and rent it). And it’s not something you can easily sell into a hot market and collect profits from appreciation Why? Because where are you going to live? Let’s say you do sell your home into a hot market to pocket some appreciation. Now you need a new home, and you’re going to have to buy in that same hot real estate market.

You may have to sell in a poor real estate market

Finally, let’s not ignore the risk of being required to sell your home into a poor real estate market. We tend to forget that it’s possible to lose money on your home as millions of people did following the mortgage crisis.

In the worst cases, people owed more on their mortgages than their homes were worth. One report in 2011 estimated that, at the time, nearly half of mortgages in the United States were effectively underwater!

If you’re still not convinced that your house is not a good investment, let’s talk about the carrying costs.

Carrying costs

At the very least, you’ll need insurance on your home. In most parts of the country, you’ll pay property taxes on the house. Finally, even the most basic home will require regular maintenance: Painting, cleaning, heating and cooling services, appliance replacements, lawn mowing, etc.

Basic maintenance might cost a couple thousand dollars a year, but major maintenance issues like exterior painting or a new roof pop up over time, adding another few thousand a year in amortized costs.

Even if your house appreciates enough to outpace inflation and cover the realtor’s commission when you sell, it’s still very unlikely the appreciation will cover years of taxes, insurance, and maintenance. And I won’t even get into upgrades and renovations.

When you add up all these factors, hopefully, it becomes clear that your home is not an investment!

What about home equity?

Since we’re talking about the myth of the wealthy homeowner, we can’t ignore home equity. If you purchase a home outright for $100,000, you’re out a hundred grand in cash, but you now have an asset — your home — worth $100k. If the home appreciates 20 percent, you then have $120,000 equity in the home.

Now, home equity is real wealth: If you have $45,000 in home equity, you can conceivably sell the house and use that money. Of course, selling a house takes time, usually requires paying a realtor’s commission, and requires that you be ready to move out.

Cash-out refinance

Banks make this easy to do: You can apply for a home equity loan, a home equity line of credit, or you can do a cash-out refinance in which you take out a new mortgage for more than you currently owe and receive a check for the difference.

If the idea of going out and swapping one mortgage for a bigger one makes you uneasy, you’ve got good intuition. Mortgages are a necessary evil for most home buyers. As far as debts go, mortgages are better than other kinds of debt because interest rates are reasonable and some of the interest on your primary home is tax-deductible.

Still, I’m the kind of guy that would rather have no debt if I have the choice. It’s why I paid off my mortgage when I got the chance.

Not everybody agrees with this strategy. There’s an argument to be made that it’s better to carry a mortgage at 4.25% and be able to invest your extra cash in the stock market and earn 7%. That argument isn’t wrong, it’s just not one I’m personally comfortable with.

I’m willing to take risks by investing in the stock market and being an entrepreneur, but I balance that risk by being conservative in other areas of my financial life. By paying off my mortgage, I got a guaranteed 4.25% return on my money, which is the kind of guarantee you can’t get anywhere else.

That said, I have friends with plenty of money to pay off their mortgages, but they don’t. There’s nothing wrong with that, as far as I’m concerned.

The problem, in my opinion, is when homeowners treat their home equity like a checking account. As foolish as it might seem today, this was incredibly common prior to the housing crisis ten years ago.

DON’T use equity like a checking account

Back then, it wasn’t at all uncommon for someone to buy a house and, a few years later, find that the home’s value had doubled. For example, someone who bought a $200,000 with a $150,000 mortgage now owes $140,000 on a home that’s worth $400,000.

They find they can easily get a $100,000 home equity line of credit which they use to put in a pool (that doesn’t really change the value of the home) and go on a few nice vacations.

While it’s never a good idea to go into more debt simply for the sake of more consumption, borrowing against your home carries the additional risk that the underlying asset will lose value. In the housing crisis, that’s exactly what happened. I think we can all picture a foreclosure sign in front of a McMansion with a driveway full of $150,000 worth of new cars, motorcycles, and jet skis.

In our prior example, what happens when the homeowner with a $140,000 mortgage and $100,000 in home equity loans finds that her home value dropped from a high of $400K back to $200K? That’s what she paid for the home, but she now owes $40,000 more than the home is worth!

Home equity may be used for an emergency fund (carefully)

The other thing we so often see with home equity is that older homeowners use it to fund their kids’ college tuition or to pay for medical expenses and long-term care when they don’t have other sources of savings.

Funding retirement expenses like medical costs or long-term care is a good use of home equity when there are no other options. I would counsel people to rethink paying for college with that money for exactly that reason: If you don’t have other assets, you’re going to need that equity for the inevitable costs of growing old.

Myth 3: The myth of the foolish renter

Let’s assume you could live in the same house for $1,000 monthly rent or a $1,000 mortgage payment. Of the mortgage payment, about $600 will reduce the principal each month, and the rest is interest. On the one hand, owning a home seems to make sense because you’re keeping $600 a month. The problem is, we’re ignoring all the other costs of homeownership.

There are many other points to consider, but here are what I believe to be the two most significant:

  • If you only live in your home for five years or less, much or all of your equity will be erased by realtor commissions and closing costs on a new home
  • As we’ve mentioned, your home equity isn’t liquid

Yes, home equity is real wealth. But achieving a net positive result in owning your home versus renting only works if you stay in your home for decades, not years.

The break-even point is a moving target and depends entirely on the relative costs of renting and owning equivalent properties in your city. Believe it or not, certain markets can wildly favor buying and others can wildly favor renting. It all depends on how things are priced at the moment. That said, I’ve found that five years tends to be about the break-even point in many average scenarios.

Try out our rent-versus-buy calculator to get a sense of how long you might have to live somewhere for buying to make sense financially.

Renting is, actually, pretty sweet

The financial benefits of owning your home are real but frequently oversold. Perhaps just as important, however, are the non-financial benefits to renting.

Obviously, renting gives you flexibility. Most leases are just a year long. Most of us rent for at least a few years in early adulthood not only because renting an apartment requires less cash upfront than a down payment on a home, but also because we’re in the process of trying out different jobs and neighborhoods, or perhaps entire cities.

Renting frees you from the responsibilities of maintenance.  When I first bought our house, I couldn’t wait to drive down to Home Depot and buy my very own lawnmower. Years later, I now happily pay someone to mow the lawn for me so I can reclaim two hours a week every summer. Never mind the thousands of dollars we’ve spent on plumbing leaks, basement flooding, worn-out appliances, and other expenses.

I’m somewhat handy and there are times I enjoy a good DIY project. But between two careers, two kids, aging parents, and trying to find some time for fun, working on the house is rarely the thing I want to be doing most. There are definitely days I would kill to just be able to call a landlord.

Aside from the reduced responsibilities, renting can actually make financial sense. As I mentioned above, it all depends on your regional real estate market. If you’re someplace where you can rent an apartment more cheaply than you could own a home, you can invest the difference, however modest that difference is.

For example, let’s say you rent for $1,000 but would have to pay a $1,300 mortgage payment on a comparable home. That’d $3,600 each year that you can save or invest. Unlike value that accumulates as home equity, those savings are liquid. They can pad your emergency fund, pay off student loans, or fund an IRA.

Renting is not wasted money! Although there is a financial argument to be made for buying a home where you’ll live for 10 years or more, you shouldn’t feel any pressure to rush into homeownership, especially if you suspect you’ll want to move around a bit in the near future.

So, you still want to buy a home

As I’ve frequently said in prior articles about the false promises of homeownership, I know many of you are going to go out and buy a home anyway. After all, homeownership is almost never just a financial decision…a home represents a portion of our hopes and dreams and, ultimately, is one of the most useful things we ever own.

Hopefully, you avoid buying too quickly and then selling too soon. This comes back to understanding that it usually takes at least five years to break even on owning a home. The longer you live in a home, the better you’ll do compared to renting.

How much to spend on a home

The single biggest factor in how homeownership will affect you is how much you choose to spend. Now, this is relative to your income. A $2 million home would bankrupt most people but might be totally reasonable for someone earning $800,000 a year. Likewise, a $200,000 home could easily prove difficult to afford for someone earning $50,000 or less.

Banks will approve borrowers for mortgages that cost up to 35 percent of your pre-tax monthly income. For example, they might give a couple who earns $100k a year a mortgage with a monthly payment close to $3,000.  When you factor in the taxes the couple pays on their income, however, that mortgage will end up being nearly 50 percent of their tax-home pay, leaving only about $3,000 for all of their other monthly expenses.

Spend no more than 20-25% of your monthly income

I recommend trying to spend no more than 20 to 25 percent of your gross monthly income on housing. You can use our home affordability calculator to run some scenarios and see how much house you could afford, adjusting for interest rate and down payment. It might be less than you thought or hoped. But just remember: The less you spend on your mortgage, the more money you have for everything else.

It’s extremely difficult to balance financial stewardship with the emotional draws of your dream home (and a realtor’s sales pitch). Just remember that, in the long run, having a modest home you can comfortably afford is far better than having an incredible home you can’t afford.

Your down payment

Once upon a time, buying a home required a 20 percent down payment. But, as housing has become more expensive and lending more competitive, down payment requirements have plummeted. Ten percent down payments are common, and federal programs like FHA and VA loans allow people to buy a home with as little as 3.5 percent down.

Choosing the right amount to put down is a balancing act.

In a perfect world, putting 20 percent down is still ideal because it provides the best insurance and helps make sure that your mortgage won’t fall underwater due to a sudden decline in home values.

That way, you can still sell your home and walk away if you need to. Down payments of less than 20 percent increase the risk that your mortgage could fall underwater, and it’s why most banks will require private mortgage insurance (PMI) for smaller down payments. e.

Still, you don’t want to use all of your available cash on your down payment. Far too often, I see people use every last penny they have on their down payment and closing costs, only to move in and go into credit card debt just to be able to afford furniture and the inevitable home improvement projects that immediately become “priorities” when you move into anything but a newly-constructed house.

Ideally, you should be able to make a down payment and still have

  • An emergency fund with a minimum of three months’ living expenses (which you will later rebuild to six months’)
  • A reasonable budget for furniture, interior design and/or unforeseen improvement projects

For a couple who has $50,000 saved and $3,500 in monthly expenses buying a $200,000 home, that looks like:

  • $10,500 minimum emergency fund
  • $7,500 in home improvement budget
  • $32,000 remaining for the down payment (16 percent of $200k)

Your interest rate

I won’t spend a lot of time talking about the importance of building good credit and its effect on your mortgage rate only because Money Under 30 has covered it so extensively elsewhere.

Surprisingly, there is more wiggle-room for less-than-perfect credit when buying a home as compared to, say, applying for a credit card. Borrowers with credit blemishes may still be able to get approved for a mortgage. The thing is, it will be a lot more expensive.

You’ll want a credit score that’s at least in the low 700s to obtain the best mortgage rates available.

That’s because seemingly tiny differences in mortgage rates can add up to tens of thousands of dollars in additional interest over the lifetime of your loan.

Carrying costs

Factors ranging from property taxes to the age of a home equate to dramatic differences in the carrying costs you’ll pay to live there.

Property taxes

Where I live in Maine, property taxes are a significant consideration. When shopping for our current home, we passed on several beautiful homes that were no more expensive than the home we ultimately bought but had notably higher annual property taxes.

There are numerous factors that affect your property taxes to take into account. If you plan to have kids and property taxes pay for better-than-average schools, paying more in tax can be smart because it’s usually a lot cheaper than private school tuition.

New construction taxes

Other factors to watch out for are the fact that new construction tends to be taxed at a higher rate and how the location of your lot impacts property tax. I live in a coastal town where property taxes near the ocean can be double the taxes on an equivalent home just a half-mile inland. And if the house has actual ocean frontage, forget about it — the tax bills get downright ridiculous.

HOA fees

Homeowner’s association fees are another consideration. Often times, HOA fees provide a good way to budget for shared maintenance, but other times you may be paying for services you don’t need. Either way, you’re taking on an expense that isn’t entirely within your control.

Whether or not you pay an association fee, there will be some maintenance items you’ll need to handle yourself.

Market conditions

When buying your own home, you may not have the luxury of trying to time your entry into the local real estate market as if you were, say, going to try your hand at purchasing and managing an investment property. You’re likely going to buy when you’ve saved enough money and it makes sense to move.

Make sure you have a good real estate agent

Nevertheless, if you find yourself house hunting and feeling pressure from realtors to submit offers after seeing a house just once, take a breath. When there’s a seller’s market, buyers not only end up paying more to get a home, they end up needing to make decisions very quickly. When you’re buying something as expensive and important to your life as a home, that’s not ideal!

A good realtor will help you strategize, even if it means delaying your shopping until market conditions have cooled. Be wary of a realtor who is pushing you to enter multiple-bid situations anyway after you’ve explained you don’t HAVE to buy today. Most realtors will work with your best interest in mind, but some may put their desire for a quick commission in the driver’s seat.

Look for homes that have been on the market for a while

If you have some tolerance for making home improvements or settling for a slightly out-of-date home, look for homes that have been on the market for several months. You’re definitely more likely to avoid a competitive bid situation and may find sellers who are willing to negotiate quite a bit on their asking price. In the same vein, spring and summer tend to be the most favorable seasons for sellers. As a buyer, you may find less inventory in fall and winter, but you’ll also have less competition.

You may want to wait for the market to cool

Finally, just as you may not be able to avoid buying into a hot real estate market entirely, you won’t know where a market bottom is going to be, either. Waiting until a super-hot market cools isn’t a bad idea, but if you try to time the market bottom you may just end up waiting around for years or realize one day that you’ve missed it and prices are appreciating again.

For the most part, time your home buying based on your needs and financial situation, not the market.

Summary

Buying your first home is incredibly exciting, but it’s also, most likely, the largest financial decision of your life to date. And, despite all the curmudgeonly cautions I’ve laid out here, being a homeowner is still an incredible privilege and experience that I hope you get to experience (if you want to).

I hope you’ll take away the following:

  1. Buy a home because you want to be a homeowner and when you’re financially prepared to be a homeowner.
  2. Wait to buy a home until you can be reasonably sure you won’t need to move or sell the home for at least five years.
  3. Do not stretch to buy a home before you’re ready because you speculate you might “get in on the ground floor” and enjoy rapid appreciation in your home’s value and equity.
  4. Do not look at your home as an investment or sacrifice other necessary financial goals like debt repayment and retirement savings to make buying a home possible.
  5. Do not underestimate the carrying costs of a home or the less obvious lifestyle costs that will pop up when you decide you want to redecorate; buy new furniture, or improve your landscaping.
  6. In the meantime, don’t feel bad about renting!

A house can absolutely be a money pit. But, it can also be the best thing you ever buy: A place to relax, to entertain, to raise a family. Your personal sanctuary in a crazy world.

Your goal should be to enjoy all of those benefits of homeownership while minimizing the cost and financial risk. Just as with any financial decision, take your time to get it right.

Read more:

  • How Much Cash Do You Really Need To Buy A Home?
  • Why You Should Buy Less House Than You Can Afford