Are you thinking about buying a house? It can be hard to decide whether to buy a house now or wait – today’s market is going nuts! In this post you will learn what is best for your situation.
Owning a home has always been considered a great and safe investment, until 2008. After years of a downturn, the housing market is back to 2008 highs again.
Many of my peers are buying houses, and I have to admit that I’m also considering it. Even though I’m living very cheap currently, I don’t want to live in this house forever.
If you’re considering to buy a house, but should you buy a house now or wait?
My parents bought a newly built home in 2007, where we moved in in 2008. After 2008 the housing prices collapsed, and our home was worth two-thirds of what it was before. When you’re buying a house of €600.000, that’s quite a bummer.
My stepdad lost his job, they were unable to sell the house, and we were living in a house that we could barely afford.
Today we’re still living in that house. My parents’ financial situation is getting better, but they’re still living in a house that’s too big.
Purchasing a house is a major investment, which I believe people are underestimating. That’s why you should dive in before making your rent to buy decision.
Should I Buy A House Now Or Wait?
You will have to look at:
1. Your Current Financial Health
When you’re considering to buy a house, the current state of your finances is very important because of two reasons:
- Do you have cash for a down payment? In the Netherlands, your current down payment would be around 10% of the value of the house. It means that you can’t get any mortgage for more than your house currently is worth.
- Can you afford the mortgage? It’s an obvious and very important question to ask; can you afford the mortgage? If you take a fixed-rate mortgage, your payments will stay the same over the term of the mortgage. However, if you’re taking an adjustable rate mortgage, you should consider if you can still afford the payments when the interest rates go up in the future.
To be sure that you can pay the mortgage, plan some scenarios over the upcoming few years and see if you can still pay your mortgage. Go to #2 to read this in more detail!
If your initial interest rate is lower but you’re having an adjustable rate mortgage, please think about it twice before you’re taking this mortgage.
What if the interest goes up 5% in the upcoming years? If you need to find a creative way to finance your mortgage, don’t do it!
If you’re having a hard time getting together the down payment for a house, there are several ways you can do so:
- Save over half your income, which is the fastest way to save for your down payment
- Cut your utility bill in half
- Follow these 25+ easy money saving tips
- Up your passive income game and get some passive income every month
2. Your Future Finances
Besides your current finances, it’s also important to look at your future finances.
Are you thinking about changing jobs, you have a changing family situation, or changing income? Think it through before you’re going to buy a house.
It might be a good idea to wait until your financial situation has stabilized.
In addition, an emergency fund can come in handy in case of unforeseen events. If you need some kind of surgery or you’re laid off, an emergency fund will save you!
Your emergency fund should entail a few months worth of living expenses in cash. It is recommended to start building your emergency fund before you buy a home.
This emergency fund will not only come in handy before you buy the house, but it’s also ideal to have once you are a homeowner. It will cover unexpected repair costs and similar expenses that you did not think about.
[Related Read: Why I Am Not Paying Off My Student Debt In 2019]
3. The Current Market
Market conditions can be quite important.
The housing prices are rising over the last 7 years because of the lowering interest, and there is no sign that we’re getting a higher interest rate in the foreseeable future.
What market conditions can do:
- In this case, interest rates are extremely low. It may be a good time to buy a house because your monthly payments will be lower compared to when the interest rates will be higher.
- If there is more demand than supply, the housing prices will rise. This will mitigate the effect of lower interest rates.
- If property values are on the decline, which is currently not the case, it might be a good time to wait. If you wait a couple of months, you could end up getting a discount on your house.
It is very hard to predict what the property market or the interest rates will do, however, it’s still a factor worth considering.
[Related Read: A Simplified Look At The Savings Rate]
4. You Are Responsible
Being a homeowner comes with all different kinds of responsibilities.
You have to take care of any maintenance and repairs that have to be done around the house. You have to take action yourself instead of calling someone who is taking care of everything that needs to be done around the house.
Some people really don’t mind taking over the chores in the house and taking responsibility for them. Others rather no deal with these kinds of things and don’t want to think about it.
Consider what kind of person you are.
[Related Read: Why Frugality Is Not Boring]
5. Duration of Stay
When you’re planning to buy a house, you have to be committed to your home. There are high costs associated with buying your house, so you should keep those in mind.
In the Netherlands, you pay an average of 10% of the value of your house in extra costs, like real estate agent costs, notary costs, and mortgages fees. This money needs to come from your own savings.
This means that when you buy a house of $150,000, a total of $15,000 needs to come from your savings account. You cannot take a higher mortgage for this amount.
With these kinds of costs, it’s difficult to make money on a home unless you decide to live in it for a while.
You should at least live in the house for 3-5 years, but longer is recommended. When you stay in your house for a longer period of time, the initial costs will be spread out over a longer period of time.
I would advise staying in your house at least 3-5 years, and the longer the better!
Have you decided to buy a house now or wait?