Morning! today I have a guest post from Kevin Watts who blogs over at Graduating from debt, enjoy! Let me know if you would like to guest post on RFI.
The house, the white picket fence and a couple of kids running in the yard, starts every “American Dream”. Something that we can be proud of that has been achieved through all our hard work. But there are things to consider before achieving your own “American Dream”. But owning a property is not without its benefits.
We spend a lot of our lives saving money and living with-in our means, but we never questions our selves as to why we do this. The main two factors include freedom and security. You want to build a nest egg and security investment for your precious family, and rightly so. You want to make sure that if anything unforeseen happens you have funds available to accommodate them.
Once we have made sure we feel human instinctively secure we work on freedom. The power to unlock what you and your family need and want on demand, and to live your life the way you choose.
So how does taking out a massive mortgage help?
With security and freedom over shadowing our financial goals, how does taking out a mortgage help build your dreams? The fact of the matter it does not help you feel more secure, if anything it helps you feel less secure because of the outgoing payments each month. But this is not something to be put off by. The waiting for the fruit to ripen is worth the reward. In years to come when you own your home out-right you will see a massive return on your investment and all the years of feeling a little less secure will be worth it. So long as you keep up with your repayments you have nothing to worry about, apart from the up-keep of the property.
What finances should you consider before buying?
There are several things that you should think about before purchasing property. These are just a few of the main ones.
- WHEN THINGS GO WRONG. It does not matter what age or financial state you are in, you need to plan for unexpected occurrences. There is no amount the can be said you need as a minimum or maximum; this is because everybody’s emergencies will be unique to all others. You need to make sure though you have enough to pay at least one months payment for the property to make sure if something does happen you have a bit of breathing time to plan you next move.
- LIFE DEATH AND ILLNESS. Insurance is the best you can have to help you feel more secure and safe. You should consider for all of you family life, illness, death and property insurance. With this you can sleep easier knowing that if something does go wrong you are covered.
- RETIREMENT. You also need to consider retirement, even if you think that is years away there is no time like the present to plan. You need to plan to save; you need to consider how much you will need to live on when you retire and for how long. Paying into a pension plan would be advisable.
This post was featured on the Carnival of Financial Camraderie, Carnival of Money Pros, thank you!
I think there are a number of things you should likely get handled before buying a house and I’ve written about it previously: http://momanddadmoney.com/buying-a-house-financial-priorities/
Buying a house can be a great financial decision if you make a smart purchase AND stay there for many years. But I definitely don’t think it should be held up as the standard of financial achievement that it is today.
So many people buy a house before really thinking about all of the costs associated with it. Many don’t think that there are property taxes and insurance, which can add hundreds (and sometimes thousands) to the monthly housing cost. Also, having a good house emergency fund is a good idea too. After all of these items are accounted for, then each potential homeowner should think about how much they can actually afford.
A friend of mine is buying a house. They are putting nothing down. They are taking out the full amount of the loan. Back in my younger years, I would say, go for it. Build up the equity slowly and take the tax write off. What foolish thinking I had back then.
Today, I think 20% down is the minimum someone should consider when buying a house. If you can do it, pay cash and walk into the home debt free. I say this in the context of a home you are going to reside in. For investment properties, put down only what you need to for a ROI of 20%+. For the house you are going to live in for a long period of time…put down a large down payment and then pay it off as quickly as possible.
Financial freedom is the best! Living debt free is the ultimate feeling and I can’t express how nice it is to not have to worry about bills and expenses every month. Getting a tax break should not enter your mind when deciding whether to pay off a house quickly. The mortgage companies don’t want you to pay off the house quickly…so…you should do the exact opposite! Think about that for a moment and you’ll see it makes total sense to pay off all debt, including one’s own home, as soon as possible.
After that…the fun can begin and you can start “investing” in the sense of taking real risk for larger and larger returns.
My wife and I are hoping to buy a house this summer and we’re going through the process of making sure we’re in a good financial place to do so. Thankfully we can answer ‘yes’ to questions 1, 2 and 3, so I think we’re good to press on!
There are so many factors, and so many costs. I’d love to buy my own house some day – find and make stuff to put in it. I certainly wouldn’t have some snazzy modern house unless it was a bargain, whilst renting in the meantime will have to do.
Before buying a house I should first prioritize the security of my family. I’ll be securing the educational fund for my kids. Then if I did that then that’s the time that I’ll buy my dream house.
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