4 things I tell clients who want to buy a home but can’t afford it

  • Buying a home in today’s hot market is not necessarily a good idea – renting could be smarter.
  • You may lose money on your home if you buy now at an inflated price.
  • Plus, just because you can’t buy now doesn’t mean you won’t be able to in the future.

It looks like we’ve been in the end seller market for real estate for the past couple of years. Even with interest rates rising and mortgage rates at their highest levels since 2009, potential home buyers are still at a disadvantage thanks to restricted supply.

Between the ballooning costs and those rising rates on home loans, buying a home is more expensive than ever. Is there anything you can do if you want to buy, but simply can’t buy it right now?

As a financial planner, here’s what I suggest you keep in mind if you ever find yourself in this situation.

1. Buying is not always better than renting

The first thing I remind you is that despite the repeated phrase, it is actually Not Always better to buy than rent. Also, the rent does not throw money!

There are plenty of situations where renting is the financially optimal option, other than the up-and-coming costs of home ownership, regardless of whether you can afford to buy or not.

Personally, I waited a long time to buy a house because I lived in Boston. Running the actual numbers for my situation showed that leasing was the optimal financial move at the time, as it freed up more cash flow each month so that I could then contribute to investments to grow my assets.

Renting provides you with a fixed and stable cost that you can easily plan for each month. When you own a home, you are always subject to unexpected expenses, repairs or maintenance bills that can seriously mess up your budget.

Buying a home is also something that requires you to have a fairly specific long-term plan. The longer you stay in the home, the more likely you are to break even with your costs when you go on sale or make a profit.

There is no reason to force yourself to own a home, especially if you can’t afford it now. As a renter, you have more flexibility to consider your options, move into your career (which can dramatically improve your financial situation), or simply change your living situation as you wish.

2. This is not a case of “spend money to make money”

Making a profit at any time from selling the house is a big “if”. People tend to think that real estate is a great investment, but the truth is more complicated.

This is especially true when you are buying a primary residence that does not provide rental income, in a seller’s market where you know there is a high possibility that the property is overvalued due to demand.

So why do people insist that real estate is a good investment? Because they tend only to look at the upper line numbers: what they bought the house for, and what it is worth today.

This oversimplifies the situation, as it does not take into account:

  • fact that Your home ownership doesn’t actually pay your bills. Zillow can tell you whatever he wants for your estimated home value, but the only thing that matters is what someone will pay for it if you try to sell and when you try to sell.
  • The cost of property taxes and insurance over time.
  • Every maintenance and repair bill you payFrom a routine $49 washer and dryer inspection to jobs that can cost tens of thousands of dollars to complete.
  • All the cash you might put into renovations or improvements. While these can increase the value of a home, it is very rare to get 100% of the money you spent and even more likely you will actually make a return on a particular project.
  • Miscellaneous expenses of owning a home The ones we tend to forget: the lawn mower you had to buy (and eventually replace), the appliances you need to buy yourself (instead of the owner taking care of it for you), the endless amount of trips to Home Depot…
  • opportunity costor what else you could have done with all the money you put in your house while you owned it.
  • interest cost. Depending on the mortgage interest rate, you’ll pay much more than just the home’s sale price over time if you spend a full 30 years paying off your mortgage.

Real estate Can be a good investment. But for most people in most areas, a single-family home that you own and live in yourself (instead of renting) is a useful tool rather than a source of profit. That’s why, if you can’t buy now, you don’t need to force it.

3. Just because you can’t buy now doesn’t mean you can’t in the future

The first thing I ask someone if they come to me and say they can’t buy a house is, are you You have to buy now? If not, the best answer may be to simply wait.

Waiting gives you more time to build the cash flow, savings, and continuing income needed to buy a home. And as the market is as crazy as it was in 2022, there may be advantages to waiting until the dynamics change and the buyers aren’t in such a tough position.

If you can’t afford to buy a home now, a good course of action to take today is to get serious about your financial planning. Set a goal and make a plan to get to where you want to be in the near future.

4. Adjust your budget

But not everyone Can Wait, in which case, the solution may be to adjust your home budget. While it may not be the answer people want to hear, just looking at homes in lower price ranges can give you an opportunity to buy now instead of waiting.

Consider looking in a different location, looking for a smaller property, or accepting a home with fewer upgrades and improvements in order to find something that fits your financial reality.

Remember, just because you can’t buy your dream home Immediately It doesn’t mean you can’t afford anything if buying a home is a top priority for you.

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