So, you are newly married (or preparing for marriage) and ready to get off on the right foot financially.
Everything you have heard leads you to believe that you should purchase a house as soon as possible rather than “throw your money away” on rent.
A house is your biggest investment and the basis for long-term wealth building.
Prices are down, tax credits are available, and everyone from your uncle to your real estate agent are urging you to act now…NOW!
Not so fast.
While I agree with each of the reasons above, this does not mean that you should purchase your first home as soon as you return from the honeymoon (or even before your wedding). Trust me, while having a good estimator for your taxes for the year is always a good asset, it is going to take a lot more than a few tax credits to make buying a house feasible.
Based on my own first-hand experience and the extensive reading that I have done on this topic, I urge you to consider two primary questions before you buy a house (and one is not even a financial consideration).
Are You Ready Financially?
I think most engaged and newlywed couples know that they need to consider their finances before they decide to buy a house.
Typically, this thinking is focused on figuring out the bare minimum credentials that a mortgage broker will require before approving them for a loan.
This is the wrong mindset. Please do not set your financial sights on just sneaking under the limbo bar of mortgage underwriting requirements.
Trust me when I tell you that mortgage brokers and real estate agents will approve you for a much larger home loan that you should actually take on…even after the recent subprime mortgage meltdown.
I strongly advocate a more conservative approach that generally follows (I’m a bit more lax) the advice of one my financial role models, Dave Ramsey, whose books Financial Peace and The Total Money Makeover have shaped my own approach to personal finance.
Here are the financial goals you should meet before you pursue your first home purchase:
- Have a solid credit score; 750 or higher should get you the best mortgage rates. Alternatively, have no credit score because you don’t borrow money and get a manually underwritten mortgage.
- Have at least 5-10% of the purchase price to apply as a down payment (in addition to closing costs).
- Ideally, become totally debt-free, but at a minimum you should pay off all unsecured consumer debt.
- Have an emergency fund of 3-6 months of household expenses saved up.
- Only take on a mortgage where your total payment (including taxes and insurance) will be no more than 25- 30% of your monthly take-home pay based on a 15-year fixed-rate mortgage.
Basically, if you follow the step-by-step Married Money Management plan, you’ll be ready to thrive.
I know that my advice will seem conservative compared to what you will receive from many, especially those with a vested interest in getting you to buy a house, and a big house, as soon as possible.
However, please consider that my interest is squarely focused in helping you have a happy and successful marriage.
If you stick within these guidelines, you can be confident that you won’t become house-poor and have your home ownership dream turn into a nightmare!
Are You Sure This is Where You Want to Live?
While most couples take the time to evaluate their finances (or are forced to by the lender), many do not properly contemplate the permanency that comes with buying a house.
Generally, you will need to stay in your house for at least two years (preferably five years) in order to make the costs work out.
In other words, you are going to be in the house for a long time if you don’t want to lose a bunch of money on Realtor fees, closing costs, etc.
I strongly advocate waiting to buy a house for at least a year after you get married.
I think you will need that much time to be able to best answer questions like these:
- Will our careers keep us in this general area?
- Are we each comfortable with the daily commute that will be required?
- Is this neighborhood up-and-coming and do other young couples live here?
- Given we’ll be here for a while (and maybe you have children already), is this the school district we want to send our children?
- Are we an appropriate distance from our mothers-in-law!?!
If you take a solid year to let your marriage mature, you will have much better answers to these questions. Plus, there is something to be said for renting and remaining free of the responsibilities of mowing, maintenance, painting, etc. so you can just enjoy your new spouse and focus on your new life together.
But don’t just take my word for it regarding the sacredness of the first year of marriage, just look in the Bible:
DEU 24:5 If a man has recently married, he must not be sent to war or have any other duty laid on him. For one year he is to be free to stay at home and bring happiness to the wife he has married.
So, take it easy and just enjoy each other for at least a year. Use this time to get settled and strengthen your financial situation.
And then find a great home at a reasonable price, and you will set your family up for an awesome financial life!House photo by karla kaulfuss; Billboard photo by sylvar