Home ownership provides stability, but that may not always be a good thing when you are in your career-building years. If you are looking for a promotion, an advance, or job change, you may have to relocate to get to that next level. You need to have the ability to move on short notice. Having to sell your home quickly could force you to offer it up at a bargain price.
You may not have a family now, but there’s a good chance that will change in the near future. While that cozy home or downtown condo may sound ideal now, you’ll likely feel different as a party of three.
If for any reason you think you may not be able to stay in your home for five to seven years, you should not buy. It will be cheaper to rent. The rule of thumb used to be seven years, but now that the housing market is stabilizing, that timeline has shifted slightly. With only moderate market appreciation, it will generally take five years for you to recoup the many thousands of buying, selling, and carrying costs. Keep in mind that in the first years of your mortgage, you won’t be building up too much equity. Banks charge a hefty portion of your interest upfront, with very little going to your principal in the first few years.
You can’t overlook your student loans, car loans, and any other debt you have accumulated. Consider paying it down first, particularly credit card debt. Not only can a home purchase slow your debt reduction plan-likely costing you more in interest- banks will not be willing to approve you for a loan if your debt payments eat up a significant share of your income.
When you’re in the early stages of your career, there may be jumps and gaps in your resume, which can make getting approved for a mortgage a challenge. What’s more, job situations can change overnight. Once you own a place, losing a job, suffering periods of unemployment, and living on a lower income are not as easily weathered. You may even need to accept a new job with a lower salary, but your housing costs will remain the same. You won’t be able to quickly downsize, and want to avoid needing to sell out of financial desperation.
After you come up with the down payment, the closing costs, and any renovation that you need to make prior to moving in, your bank account likely looks depleted. Having few dollars to your name is likely not the way you want to start living the ‘American Dream.’ Thus delay buying until you make sure you will have enough cash leftover to weather a job loss, an unexpected emergency, or even a health issue that could impact your earning power. You don’t want to end up house rich, cash poor and nothing to rely on in an emergency. Life happens.