Bidding On Your First Home? Ask Yourself These 3 Questions First
You think you’ve found the right house or apartment, but you’re nervous — should you take the risk and bid? Here are three questions to ask yourself before you go ahead:
1. Would I Consider A Less Wonderful Property In This Location?
There’s a quote that says the three most important factors in real estate are “location, location, location.” However, when you find your dream home—the one where the sun comes into the living room just so and the kitchen is perfect—it’s tempting to toss that saying out the window. However, you should try not to, because you’ll have to sell the property someday. So ask yourself, “if this property were a little less wonderful, would I still want to live here?” If the answer is yes, then you’ve still probably got positive location factors—such as nice neighboring houses, a decent school district, and access to good shopping. If the answer is “no,” that may be a warning that the location factors are negative—maybe you’re trying to overlook a lousy area because you found a nice house, or you’re trying to ignore a drawback like a busy highway or a noisy downtown. Just remember: Future buyers may not be as easygoing as you.
2. Do I Really Have The Money For This?
There is, of course, a spectrum of affordability. Some people will wait till they can pay all cash for a house (really!) while others will try to go no-money-down. But it’s helpful to try to think about your budget in different ways. On an ongoing basis, will your housing costs (mortgage, taxes, and insurance) come to less than 30% of your gross income? If it’s more, that’s a red flag. Do you have a few months’ reserves set aside after you buy (six months worth of housing costs is a good idea)? What if you suddenly need a new roof; how will you pay for that? And what will the plan be if you lose your job? If you can come up with answers to all these questions that satisfy you, then yes, you really have the money for this. You may be thinking of even more bizarre scenarios (“What if the West Coast gets hit by a tidal wave that wipes out half of California?”) but in cases that outlandish, whether or not you can keep your home will probably be the least of your worries.
3. How Long Do I Intend To Live Here?
The average American moves every six or seven years, which is generally long enough to ride out a real estate cycle. If you’re planning on selling your place before that, though—maybe you think in four years you’ll trade up, or maybe you think that you might have to relocate to advance your career—you might be stuck in a bad market. In fact, some of the victims of the current housing slump are speculators who thought that they’d sell and take their profits, but got stuck living in their properties instead. So think about your timeframe for holding the property, and if it’s less than five years long, consider renting instead.
Tell us in the comments: What sold your on your current home?