May 19, 2022
Buying your first home has long been thought of as a fundamental part to achieving the American dream, and in our grandparent’s generation it was one of the best investments you could ever make to secure your future. Unfortunately, nowadays this is becoming more and more one of the most common and concerning falsehoods pertaining to modern day real estate investment. While it is accurate to say that homeowners generally have a higher net worth than those who rent, this does not mean purchasing a property is a good investment in all scenarios. Below we will look at a few examples of when purchasing a first home is not always the best financial decision one can make.
Don’t Buy Before You’re Ready
If you’re too excited to purchase a property because you believe it’s always a great investment, you may be tempted to purchase a property at the wrong time in the market. This is often the case when you purchase a home but you do not plan to stay put for at least the first few years, or worse yet, if you purchase a home before you have the necessary money to make a proper down payment and cover all of the closing costs. It is so important nowadays to make sure you have the proper credit score, a sufficient emergency fund, a five year financial plan at minimum, and have your financial affairs in order before you purchase your first home.
Don’t Spend Above Your Means
It is understandable to think that your home is an investment that will always pay off for you, but regardless you should not ever justify spending more than you can currently afford. You should avoid taking out too high of a first mortgage loan, and avoid adjustable-rate mortgages which may put your payments within your budget but balloon out of control in the near future. Without the proper financial planning ahead of time you could be left house- poor or worse yet, placed at a higher risk for foreclosure or bankruptcy. Over spending on a first home could leave you lacking much needed funds to accomplish other financial goals like investing in other higher return on investment opportunities.
Don’t Create Unnecessary Losses
It is important you do not fall for the trap and assume that all properties will go up in value in all circumstances and that you’ll always be able to sell your first home for more than the original purchase amount. Most properties may appreciate over time but there is are no hard guarantees in every situation.
Sometimes you may find the right deal and make money off the appreciation of your home but you shouldn’t count on your first home purchase to make you tons of money. Instead, you should view your first home investment as an expense and not just a sound investment. It’s smart to make sure you take into account all the costs that comes with owning a home, including upkeep, property taxes and insurance. You should make sure any first home you decide to purchase is affordable after all costs are calculated, and that you’re in a good financial position to close the deal. You should also keep in mind that while buying a first home will give you a place to live, you won’t be able to access the profits of your properties investment until you sell it or refinance and pull out equity. You will still need other more liquid investments for your retirement and other life commitments. Understanding the above scenarios can help go a long way in making the right calculations prior to purchasing your first home and help you to achieve your long-term goals of growing your overall net worth. This will put you in a much better financial position in the end.