Should You Buy a Home Right Now? An All-Inclusive Checklist

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After that last post we all see the cold hard cash value in living as close as possible to work. A guaranteed personal goldmine is your ticket to earlier financial independence. If you buy a home right now you are set, right?

But wait!

Before you fire up Zillow and start staking out the nearest house to your workplace on the market let’s take a step back. Is buying actually a good idea at this time? Consider the following checklist to test your resolve:

First, consider your relationship to your current place of employment:

• How much do you love your work? Is this a place you want to stay around for a long haul?
• How much do you love your coworkers? We are around them more than our significant others. Yes, we are paid to deal with these people, but at some point the pay is taken for granted and the personalities either rub you right or wrong. The right coworkers can make even the worst work a fun experience–a reason to hop out of bed and see what shenanigans will happen today! I don’t remember all the awful details setting up a certain late night stuck at work past 9 pm, but I remember a partner in crime bringing us all Cold Stone (thanks, buddy!). Alternately, they could make you dread your job and inspire you to polish your resume every night.
• How long have you had this job? If you are new are you past your initial review and feel fully confident your job is secure? The worst thing would be to lock in a mortgage only to lose your job shortly thereafter.
• Are you working on a contracted project? If so, how long is it supposed to last and are follow on extensions probable?
• How long do you plan on staying?

Now let’s look at your finances:

• How much do you plan on putting down? If it is less than 20% consider you will be paying private mortgage insurance (PMI). Budget between 0.5% and 1.0% for PMI. Additional hundreds a month, which often must be paid for at least a couple years even if you pay it off early, is an additional burden to a mortgage payment. You will also need to pay for an appraisal to make sure the home is actually still worth the same amount despite you having paid off 20%. Waiting to come up with 20% before purchasing the house might be worth the wait.
• If the current market is out of your price range how far is the nearest one safely within your budget? Reconsider buying if it is too far away.
• Once you pay the down payment do you still have an emergency fund for when Murphy knocks on your door? You do not want to put yourself in a position where you have nothing left if you have a family emergency, your car breaks down, or your new house has an unexpected major problem.
• How much is needed for necessary repairs? Consider the down payment will wipe out a good portion of your savings and you need to keep an emergency fund. Known problems are not an emergency–they are expected and should be planned. So how long will you need to wait to fix your new home if you do not have the funds saved up?
• What other add-ons are easily overlooked? Is there an HOA? What do taxes and insurance run? Is there a pool–what does pool maintenance cost? Sit down and come up with a list of anything and everything you can possibly imagine. Make sure to add all of these into your monthly payment. A nerdy Excel (or Google sheets) worksheet can help you come up with a monthly sum for these kind of expenses on top of the normal payment. WARNING: the excel spreadsheets on that website are highly addictive.

But wait, let’s consider the alternative–renting:

• Is buying a home affordable? There is no sense in being house poor. What’s the point if you pour your entire paycheck in a mortgage payment, order a pizza and not have enough left over for a tip for the delivery driver? Not cool.
• Even if a mortgage payment is affordable for your income, does it make more sense to rent? As Mr. Money Mustache observed, if the market is hot enough around your workplace even a high class rental can save you a huge amount of money every month. A rental can be right next door to your workplace and the difference between a higher mortgage payment can be pocketed for your investments. To top it off, a rental could even include amenities that you have to pay for with your own property like water, gas, trash and/or electricity.
• What is the housing market like surrounding the jobsite?
• Is renting a better idea until the market cools down?

What if renting versus buying costs nearly the same amount monthly?

• When you have a mortgage payment and eliminate the escrow fees (taxes and insurance) you are left with the principal and interest (PI) payment. In the beginning the little portion of principle is exactly that–minuscule. But consider this is actually where you are paying yourself if the market holds your house at the same value. The more you pay, the larger the amount of principle becomes. This is an often times glossed over and forgotten number. Unless you are nerdy like me and see what extra payments can do, complete with a fancy Excel spreadsheet. Is this principle number an attractive enough number to make a mortgage look better than a rent check?
• In relation to that last point, keep in mind a rent check is fully gone every month. However, it can pay for peace of mind and other amenities.
• Do you want to deal with maintenance?
• Is buying a home attractive so you can start cutting your teeth on some new house projects? <–HEY! This is why you are on this blog, right? 😉

What is your current and expected lifestyle?

• Even if a mortgage payment is less than a rent check do you have the personality to maintain a home? Instead of calling up the maintenance crew at an apartment complex or telling the homeowner the sewer line is backing up, you are now on the hook to call the plumber out.
• Are you traveling quite often? If so, renting is the way to go.
• Do you work close to something that is of daily (not weekly or monthly) importance to you? For instance, do you live and work within close proximity to the beach or the mountains. If sunset hikes on the beach or trails are a daily part of your life, your workplace is not the only location factor.
• Is there a demand for rentals if you choose to move elsewhere and it is not a good time to sell?

What if you are already locked into a mortgage?

• Would you consider selling or renting out your current home?
• Are there closer job opportunities? Changing your employer, even at a lower rate of pay can still give you a higher total in your bank account based on your commute distance alone.

Now I open the floor to you. What additional considerations do/did/will you consider when deciding if you should buy a home right now?