Let\’s be honest; the last 18 months have brought about a significant amount of uncertainty for many. I don\’t need to list all the reasons why this is the case, nor would it be helpful to recount everything that has transpired and dwell on it.
But during this time, Americans have seemingly found a refuge of sorts–a refuge in housing. We have looked at the trends regarding the low inventories and high demand pushing housing affordability to new lows. This means that while incomes are relatively stagnant, more and more people are stretching their household budgets in order to buy a home. Now there will always be uncertainty as this is just a part of life, but in the midst of uncertainty, it\’s what you do with that uncertainty that matters. While some will be more willing to gamble while the stakes are high, others may become petrified by the \’what if\’s\’, fear of the unknown, or paralyzed by what others say will happen. Now we all have a survival instinct.
But how might this fight or flight instinct affect your financial decision-making, like buying a home? I\’m going to go out on a limb and say that I believe that many–well, most Americans are simply not ready to buy a home but are doing it anyway. Let me explain. I know the American dream has always been a single-family home with or without the white picket fence.
However, so many are looking at how they can make a home purchase happen instead of whether they can actually afford a home–without becoming house-poor.
Now, I am not encouraging you to adopt limiting beliefs about your abilities, but what I am encouraging you to do is to realistically look at your current financial constraints. The key word there is current. What can you feasibly afford right now, versus only having the thought of how can I afford it?? There are a lot of aspirational buyers who are making a purchase happen by borrowing the down payment and extending the mortgage term out as long as possible; meanwhile, many components of homeownership seem to be climbing with inflation all the more.
People are letting banks and financial institutions tell them what they can and cannot afford instead of actually knowing their own financial picture and whether what they are trying to purchase actually makes sense.
So in case this readiness is a bit ambiguous, here are 7-steps that need to be looked at and changed if you want to purchase a home;
- If you are not operating off of a Budget or Plan to Spend and, therefore, are not aware of what is coming in or going back out
- If you still have some or all of your expenses subsidized by a parent, or guardian, a student loan, or some other subsidy, otherwise.
- If you have not solidified the career field you are going into or the steps necessary for a trade school, certification, higher education, or experience in order to get there
- If you are not planning to stay in the immediate area for longer than two years at a minimum, ideally five years as a plan
- If you have not paid off your revolving high-interest debt
- If you have not built an emergency fund outside of saving for a home
- Finally, if you have not taken the time to count the costs of homeownership and whether your existing savings and current income can support the purchase of a home.
How many of these steps are accurate to your situation? You will inevitably get into trouble if you have not taken the time to figure out whether you can afford a home and, if you can, how much home you can afford. Not based on an underwriter telling you that you can, but based on the reality of your financial position telling you that you can.
CTA:
My call to action is to take a close look at these seven steps to see what steps still need to be taken before purchasing a home.
