Kovar Capital: Buying a house: what you need to know

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Hey Taylor - My wife and I are thinking about buying a home, but we aren’t sure whether or not it’s the right time. I’m a PhD student, she’s a nurse, we bring in about $70,000 annually and we don’t have any debt. We’ve got $70,000 saved up and both contribute to our retirement accounts. The main variable is that we wouldn’t plan on staying in this house for more than four or five years. Is buying now a good or bad decision? - Dylan

Hey Dylan - I’ve got a great, straightforward answer for you: it depends! It might be a sound decision, but there are a lot of things to think about. Here are the main three:

What’s the real estate market like? Where you live and the current housing trends in that location are important. It’s hard to predict what will happen in five years, but real estate analytics can offer a little bit of guidance. If you’re in a big city experiencing affordability problems, now isn’t the best time. If you’re in an area with a growing market and reasonable prices, it’s a more reasonable consideration.

Additional costs. You also have to think about maintenance, taxes and other fees associated with homeownership. If you drive your monthly cost much higher than what you’re currently paying in rent, you could end up with crippling debt. You have to look past the price tag when buying a house, because there are lots of expenses you don’t see right away. However, if you understand the additional fees, you have the time to handle maintenance, and you get a good mortgage rate, you could end up with a solid piece of real estate to either rent or sell down the road.

Don’t overextend. What’s most important is you don’t take on a bunch of debt for a house you’re not planning to immediately rent or sell. Buy a home because you can afford it and have a plan for its future use, not because you love the idea of owning instead of renting. It’s easy to get caught up thinking that buying a house means you’ll make your money back later, but you have to make sure you aren’t leaving lots of variables unaccounted for that will sneak up and bite you later.

I always tell people not to take out loans for non-assets. This house, even though you may plan to sell it in five years, isn’t an asset you’ll be making money off in the immediate future. However, if you feel like you can afford it and will be paying close to what you pay now in rent, then homeownership might make sense for you. Good luck finding your new home!

Disclosure: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.

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