Owning a new home can be an exciting new chapter in your life, especially as a happy couple. In addition to the dreams you two work towards and build together, a new home can bring about a revitalization to your relationship and future. Not to mention as it’s routinely seen as an essential component to the “American Dream,” it’s also an amazing financial milestone that comes with an incredible set of benefits.
However, when you consider everything between the relationship, the finances and jobs you both have, is it really the right decision for you? While owning a home is much cheaper than renting in many parts of the country, you need to be sure you’re financially prepared to take the leap when diving into home ownership.
Trying to fill a void
If you believe that purchasing a new home is the key to finding happiness or moving on from a terrible chapter in your life, you will be sorely disappointed. Similarly to how a baby does not solve a marriage rocked by infidelity or a vacation solves relationship woes, a home is not the answer to proverbially, “starting over.” You might have more space in this home and freedom to customize your surroundings with brand new furniture, appliances, and wall decor, but a house can also be a source of frustration when the source of that frustration stems from the relationship itself.
Psychotherapist and author, Mary Jo Rapini tells YourTango that buying a new home together when a relationship has experienced problems will not restore a sick marriage, and “most likely make the impending divorce more painful.” Further, Rapini says these “fixes” will eventually lead to resentment that will grow exponentially as the couple works longer hours to make ends meet and even clash on decor. For couples treading a breakup, it’s much easier to change an address than ultimately change themselves.
You don’t make enough money
Many of us like to think we’re well off, but are you really making enough money to take on a big expense like a mortgage? Before you consider even looking at homes on Zillow or Trulia, crunch the numbers and see what your costs could actually add up to. While mortgage calculators come in handy, you need to figure out your expenses and break it down between “upfront money” and “ongoing money.”
Upfront includes everything you have with you right now that helps you to make a down payment, tend to closing costs and whatever else you need for a contingency. Ongoing is regarded as more of a financial flow, like your salary, the homeowners insurance, seasonal taxes, and everything entitled with what goes into a mortgage, such as the interest and principle. According to a report in U.S. News, financial planners state that these costs should be less than 28 percent of your gross income.
Moreover, your down payment is a huge indicator of steady and certain home ownership. Don Taylor, financial expert for Bankrate states someone who has collected “$500 to $1,000 for a down payment on a house shouldn’t be buying a house, even if it’s a really great deal.” Which means, anything between that range and less than $500 should be a red flag that you are definitely not ready for that kind of commitment.
You’ve incurred too much debt
Before you buy a home and make monthly mortgage payments, you need to factor in the debt you might have. With student loans, medical expenses and whatever else we’ve amassed over the years, there’s no denying that so many of us in the United States have incurred a large amount of debt. It’s frustrating and can feel a lot like drowning when you can’t seem to find your way out. If all your credit cards are hitting the limit, it would be wise to first get those bills under control before considering a new home. Financial experts suggest your total debt load should be less than 36 percent of your gross income, which means you need to truly evaluate your spending habits if you want to present a tough and steady borrowing power.
Inadequate amount of savings
By the age of 30, you should have a savings account and enough in there to help you on a rainy day. As one of the first steps in financial independence, a savings account is a wonderful way to watch out for yourself and keep you afloat when things go awry, whether it’s the suddenness of job loss, a breakup or even death.
But if you take a look at your account and realize you have enough for a down payment — well, that’s just the first hurdle. Collecting enough for a down payment is commendable, but is there enough in your savings to actually hold you over from other unforeseen expenses? Between medical, personal and even tending to family expenses, do you even have enough to help you pay your previous home’s expenses? Or how about enough in your account to help you pay another mortgage in the case your previous home won’t sell as quickly? Expect the unexpected and keep enough money in your savings as a reserve fund. When buying a home, you need to also consider the first few months’ mortgage payments, the moving costs, the need for a home inspection, furnishing, property taxes and whatever else is looking forward to draining your savings.
Haven’t had that new job for long
Are you in the middle of a transition at work or recently moved from job-to-job? In this case, you might want to put buying a new home on hold as mortgage lenders collectively report they want to see if you’ve been working at the same job for at least two years. This is a way for them to not only track stability, but be able to average out your income based on job history for the last 24 months. If you or your partner are those that are uncertain about your career and are constantly changing your place of employment, this is a red flag in the income gap that signals insecurity for lenders. In case you didn’t figure it out, this makes them weary of lending you money and thus, amassing beneficial credit to your name.
Think of the future
You should never buy a property unless you are completely sure you will be staying in the neighborhood for at least three to five years. Your home will be the biggest investment you ever make and should be carefully deliberated before moving in or out. If you’re unsure you want to stick around in the area or even in the relationship, it might be wise to not move until everything internally is solved between the two of you.
As it is, if you buy a house together and have to sell the next year, you’re likely to lose money because the appreciation won’t catch up to the closing costs and post-purchase expenses during that short time. Additionally, if you break up or divorce, the expenses can get messy and very ugly, especially when it comes to calculating shared assets and liabilities.