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Two Financial Wellness Questions to Ask Yourself Before Considering a Home Purchase

Navigating the journey to purchasing your first home involves considering the pros and cons of this financial and emotional investment.

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Amid the current global pandemic, countless Americans have had to revisit their financial strategy—readjusting and remapping priorities as needed to adapt to a COVID-19 way of life. For many, that means making tough decisions about major financial goals, such as when to retire, how to pay for higher education, whether to buy a new vehicle, or if the time is right to purchase a home.

As a Financial Professional, I’m always looking for ways to guide my clients into making smart, impactful and lasting financial decisions for their future. As of September 10, mortgage rates reached a new record low with interest rates averaging approximately 2.86%, encouraging many to consider diving into homeownership faster than they had originally planned to take advantage of these historic rates. Millennials, who have been historically hesitant in purchasing a home following the wake of the Great Recession, are beginning to change their tune in this environment: first-time home buyer applications jumped 20% year-over-year in June, according to Corelogic, a national data and analytics company.

Buying a home is one of the biggest life decisions and an exciting one at that; however, that milestone investment requires close evaluation, especially during these times of uncertainty. Before embarking on the process of becoming a homeowner, I always advise my clients to ask themselves two key questions:

  1. Where are you in your financial wellness journey?
  2. Why do you ultimately want to purchase a home?

The answers to these questions may help you decide whether it’s the right time to take the plunge into homeownership, or more prudent to hold off. Let’s explore those two questions further.

Tracking Against Your Financial Wellness Journey

When we discuss “financial wellness,” it’s looking at your holistic financial picture to ensure you’re tracking against your strategy and maintaining course to achieve your goals. For a major purchase such as a home, it’s important to understand how it fits in the overall picture of your financial health and think through the long-term impact on your goals and priorities.

While interest rates are certainly favorable at the moment, the trend of first-time homeownership is causing a competitive market that is ideal for sellers. With that understanding, you must first take a step back and decide if you are making a decision solely based on a moment in time, or can you really afford the mortgage and additional costs? This is where the financial wellness exercise comes into play.

Start with an assessment of your assets, considering how much cash you have on hand, what kind of investments you may hold, and how much of your total assets are liquid. Homeownership comes with additional costs beyond the down payment and mortgage expenses, so these liquid assets are what you may need to draw upon should your home need a new heating system or face a plumbing leak, for example. I recommend clients have at least six months of expenses set aside in an emergency fund for any unexpected financial obligations.

Next, think about your existing expenses including rent, utilities, food, transportation and other miscellaneous entertainment or shopping expenses. Consider how the purchase of a home will impact your current budget. There are of course the one-time expenses that go along with a home purchase, such as closing costs, home inspections and legal fees. But what about smaller changes that impact your monthly budget? Will you need to drive to work when you previously took a bus? Will your utility bills increase if a home has more square footage than your current rental? Will you need to build in added expenses for new furniture or lawn equipment?

While some of these are one-time costs, others are recurring expenses that shift the picture on your monthly budget, so it’s important to consider each in assessing how purchasing a home may impact your current financial strategy.

Investing in the Emotional Side of Home Buying

While you can’t buy a home without sorting through the finances, the emotional aspect is equally important. After all, financial wellness is about your physical, mental and monetary well-being. It’s just as important to understand the emotional impact and importance of why you wish to buy a home.

What does buying a home mean to you? It could be freedom from paying rent without building equity, a chance to live closer to family, or maybe it’s as simple as living near the beach like you’ve always dreamed. If it ultimately turns out your finances can support what your heart desires, then it may be the right time to buy a house—congratulations!

As clients begin this journey, I always counsel them to identify in advance the top qualities they are looking for in their home and list the pieces they are willing to adjust. This could be the home’s location, the building style, number of bedrooms/bathrooms, the size of the property, or myriad other factors unique to each potential buyer.

As you begin the search for your home, make sure you’re checking the box on the “must haves” and compromising only where you’re willing to. The home buying process can be an emotional roller coaster, so it’s important to stick to your list and not change your mind based on gut instinct in the moment. You might have fallen in love with that shag carpet today but find months later that the lack of an extra bedroom should have been a deal-breaker!

It’s important that you and your family feel comfortable, safe and happy in your new home and neighborhood—this is equal parts an emotional and financial investment. Throughout this process, remember to enjoy the journey—it’s just the start of a new phase of your financial journey.

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