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It’s good advice worth following.
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Buying a home is a huge undertaking. You’re not just saving money to put down on a piece of property — you’re committing to maintaining that property for what could be years on end. As such, it’s important to make sure you’re truly ready to buy a home. And to that end, it pays to listen to financial guru Ramit Sethi, who says these are the three steps needed to become a homeowner.
Step 1: Be aware of the myths and propaganda
Sethi insists that to buy a home, you first need to get to the bottom of certain myths:
Renting a house means you’re just paying your landlord’s mortgage
Not exactly. First of all, your landlord has costs to cover aside from just a mortgage loan. But you’re not paying a landlord’s bills by renting, you’re addressing a need of yours — housing. And there’s nothing wrong with that.
If you’re paying rent, you’re throwing money away
When you buy yourself dinner because you’re hungry, are you throwing money away? You’re not getting any long-term financial benefit from that meal, but you’re filling your belly with food. There’s value there, just as there’s value to paying money for putting a roof over your head.
Home prices will keep rising
In the long run, maybe. But the real estate market can also crash and flip-flop, so buying a home isn’t something you should do for the express purpose of getting rich. If that’s your goal, build a portfolio of assets in a brokerage account instead.
Buying a house is always a great financial investment
A home is more of an expense than an investment — or at least that’s how you should look at it. You might make money on the eventual sale of your home, but you’ll have sunk a lot of money into it through the years.
Once you bust these myths, you’ll be in a better position to move forward with a home purchase.
Step 2: Figure out if buying a house will make you happy
Sethi insists that buying a home is a financial decision as well as a lifestyle decision. So make sure you’re looking to buy for the right reason, like wanting stability or a certain school district for your kids.
You should also know that buying a home doesn’t always mean building wealth. So this, says Sethi, should not be part of your decision process. Rather, you should buy a home because it’s truly what you want.
Step 3: Run the numbers
Even if you’re not buying a home with an investment mindset, it’s important to make sure you can afford to own a home. To that end, it’s good to stick to the 30% rule — keeping your monthly housing costs to 30% of your take-home pay or less.
This doesn’t just include your mortgage payment, though. It should also include added costs like property taxes and homeowners insurance. Run the numbers before you start a search for a home so you know what you can swing.
Buying a home isn’t a decision to take lightly. Follow these steps so you don’t end up regretting your choice.
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