Key takeaways

  1. There are many opinions on homeownership, but it's crucial to focus on your personal situation and goals, not just market trends.
  2. Know the full costs of homeownership, including down payments, closing costs, and ongoing expenses like maintenance and taxes.
  3. Renting can be a smart choice for those valuing flexibility, time, and less responsibility.
  4. Ensure homeownership aligns with your long-term life plans, including family and career goals.
  5. The only timing that matters is whether or not it’s the right time for you, personally and financially, to buy a home.

Buying a home is one of the largest purchases most people will make in their lives. And this decision carries a lot of weight both personally and financially.

But buying a home is about more than simply buying a property – it’s about understanding what being a homeowner is really all about.

In this guide, we'll explore what it means to be a homeowner, the responsibilities that come with it, the impact it will have on you financially, and how to decide if owning a home aligns with the life you want.

The real estate world is filled with strong opinions

There are a lot of opinions out there about buying a home, and it’s important to separate the truth from the noise. Most opinions are only partial truths, and here are some of the more popular ones:

  • Renting is throwing money away. Not always. Renting can be a great choice depending on your lifestyle.
  • Homes are a great investment. Again, not always. Home values do tend to go up over the long-term, but there are very real costs that can quickly change the math.
  • You need to buy a house ASAP. And…get married, start a family, and move to the suburbs. While this is the path some people take, it doesn’t have to be your path.
  • All real estate is the same. Different markets respond differently and come with different costs (taxes, insurance, maintenance, school systems).
  • Buy a home for the tax benefits. Yes, there are tax benefits, but buying a house just because of some tax benefits is never a good idea.

Opinions aside, let’s talk about the facts of buying a home and if homeownership is right for you.

Is now a good time to buy a home?

It’s no secret that today’s real estate market is one of the more challenging ones we’ve had to navigate in recent memory. Homebuyers everywhere are facing the same issues:

  • High home prices: Home prices have increased almost 50% since 2020.
  • Higher interest rates: Interest rates are two to three times what they were pre-COVID. Rates appear to be coming down but the relief may be limited.
  • Fewer homes are for sale: Buyers are still active, but there are less sellers and, as a result, less homes for sale.

All of this has created what feels like the perfect storm for affordability (or lack thereof), and many buyers are asking the same questions:

  • Should I wait for interest rates or home prices to come down?
  • Is buying really the best option for me?
  • How in the world am I supposed to afford a home right now?
  • What are the right steps to take to make becoming a homeowner a reality?

So is now a good time to buy a home?

Here’s the truth we are notoriously bad at predicting not just the future of home prices but interest rates, the economy, inflation, the stock market, you name it.

In short, timing matters; just not the timing most people are thinking about. 

Just like investing, the decisions shouldn’t be based on timing the market (or interest rates). The decision should be based on whether or not the timing is right for you to become a homeowner and what this will mean for your money and the life you want to live.

Let’s talk about renting for a minute

It’s 100% OK to rent. In fact, over 80% of recent buyers have regrets about buying a home. Renting versus owning are two very different lifestyle and financial choices.

Renting can be a great option for people that value:

  • Flexibility. Renting gives you more freedom. When your lease is up, you can renew, find a new apartment, move to a new city, or even take some time to travel internationally.
  • More time. When you rent, you aren’t responsible for all of the upkeep that comes with owning. So you can spend more of your time doing other things.
  • Less stress. Not having to worry about things breaking, regular upkeep, or even caring for the lawn can lead to a more stress-free lifestyle.

Another way to look at this comes from one of our favorite financial influencers, Ramit Sethi. He said, "rent is the maximum you'll pay, but your mortgage is the minimum you'll pay." It’s an interesting way to think differently about the financial commitments that come with each choice.

And, remember, the only “right” decision is the one that is right for you. Now let’s turn our attention to when home buying makes sense and how to make it a reality.

Good, and “less good”,  reasons to buy a home

There are plenty of good reasons to buy a home. Let’s take a look at a few, as well as a few not-so-good reasons.

Some good reasons:

  • It’s right for you or your family. Home ownership can be a good option if it fits your lifestyle and/or the needs of your family.
  • Stability. Staying in one neighborhood for several years can allow you to build strong community relationships and create continuity within school systems.
  • Building your dream home. Designing and building your dream home can be a wonderful experience and create the living situation you’ve always wanted.
  • Freedom (of expression). If you want the freedom to decorate or renovate as you wish, or you love repairing and tinkering with a house to make it your own.
  • Put simply, you want to. Yes. It’s OK to buy a home because you want to. However, make sure it’s for the right reasons and not an emotional one.

Some reasons buying may not be a good idea:

  • You need the value to go up. Over the long-term, real estate prices do go up. However, needing your home to go up in value to make it work in the short-term puts you in a risky situation.
  • A home is a great investment. Not always. Think of it less as a financial investment and more as an investment in yourself, your family, your community, good schools, and the life you want.
  • There are tax benefits. The potential tax benefits of deducting your mortgage interest or property taxes is a benefit but not a reason to buy a home.
  • Everyone is buying a home! It can feel this way sometimes especially after a jump in home prices. However, not everyone is buying and there are plenty of happy renters out there.

Becoming a homeowner is a very personal decision. It’s important to take the time to think through your reasons and make a smart, informed decision for the life you want.

Aside from your lifestyle, there are very real financial implications as well so let’s explore what they are.

The financial part of homeownership

Buying a home is a major life decision, and it’s one that requires proactive planning. Rushing to make a decision can lead to very costly mistakes, but thoughtful planning can reduce your stress (yes, this is possible!) and help you make a smarter, more informed decision.

Here’s what you need to consider:

  • Down payment. The recommendation is to try and save for a 20% down payment. This can feel very challenging today and you can buy a home with as little as 3.5% down or even 0% (if you qualify). 

Should you buy a home if you don’t have 20% to put down? The short answer is maybe. The longer answer is you will likely pay mortgage insurance, and, when you look to sell, you might have to come up with cash if you haven’t built much value (called home equity) in your home.

  • Closing costs. These can cost you 3% to 6% of the loan amount on the home. And, with recent changes to how real estate agents get paid, it could mean higher upfront costs. Know your all-in costs so you don’t experience any surprises.

Key point: When you sell your home, you will likely incur costs between 6% and 8%, if not more. So keep this in mind when you think about the math of selling a home and potentially making money.

  • Mortgage options. This can get confusing fast - 30 year vs 15 year vs ARM (adjustable-rate), FHA, VA, USDA, LMNOP (that’s not a real option). All of these options impact your down payment, interest rate, and monthly costs. Work with a knowledgeable loan officer to understand all of your options.

Key point: When you apply for a mortgage, the loan officer can approve you for a mortgage payment that is up to 40%+ of your monthly income. Just because they approve you for this amount does not mean it’s the payment that’s right or affordable for you.

  • Impact on your cash flow. Your monthly expenses will change in mostly expected but some unexpected ways. Make sure your monthly payments and other costs (more below) don’t hurt your ability to achieve your other goals.
  • Don’t ignore the “pluses.” What are the “pluses” of homeownership? Property taxes plus homeowners insurance plus utilities plus HOA fees plus maintenance costs plus flood or earthquake insurance (in certain locations). The “pluses” add up quickly and should be factored into your calculations.

So now you know more about the financial commitment, but how do you know what’s affordable?

Knowing what is (truly) affordable

28%.

That’s the rule of thumb for how much of your before-tax (gross) income should go towards your house payments. As an example, if your income is $10,000 per month, you should spend up to $2,800 on your home.

But there’s an important point that many people overlook.

The 28% includes everything, not just the mortgage payment (principal and interest). You need to also include taxes, insurance, utilities, and estimated maintenance costs (remember the ‘pluses’?). This changes the math, a lot.

The second thing that people often overlook is that rules of thumb do not account for your personal situation.

Putting 28% of your income towards housing costs might be a good number if you’re single or married with no kids. But if you start a family (kids are expensive!), have a nanny, daycare, or costs related to an education, 28% may quickly create some cash flow issues. And don’t forget to account for other obligations like a car loan or student loans.

28% isn’t a magic number, but it can be a good starting point. The most important thing is that you know what works for you today and how that will change in the next 3 to 5 years. Be intentional about your housing budget, the impact on your cash flow, and how that will change down the road.

And, one thing we know about housing costs is that no one has ever complained about a payment that is too low.

How to know you’re ready to buy

Okay, so let’s say you want to buy a house. How do you know if you’re actually ready? Here are some essential factors to consider before deciding if now is the right time for you:

  • You’re clear on the life and lifestyle you want. Remember, homeownership should ideally be a long-term commitment (at least 5, if not 10 years).
  • You have a healthy financial foundation. This includes positive cash flow, having an appropriate emergency fund, no high interest rate debt, and investing in some form or a retirement account.
  • You’re financially prepared. This means you have saved for a down payment, you’ve done your math on what is affordable (the real math and not the “we can make it work” math), and you understand the impact on the rest of your finances.
  • You are honest about the pros and cons. The home buying process can make us overly emotional and we can focus on just the pros and ignore the cons. Don’t overlook the cons.

Remember, buying a home is one of the biggest financial decisions people make, and it’s a very emotionally charged event. If you’re uneasy or unsure, know that this is normal and that it’s 100% OK to take a breather and wait.

Pro tip: Don’t overlook the importance of your credit score. A higher credit score could mean you qualify for a lower interest rate, and a lower score could equate to a higher rate. It’s OK to wait to buy while you work on building healthy credit.

The only thing that really matters - what’s right for you

Everyone has an opinion on home ownership, renting, the best time to buy, and pretty much every other aspect of “housing” (renting or owning). The truth is that the only thing that matters is what makes sense for you, your situation, and the life you want to live.

Becoming a homeowner can be a truly rewarding and fulfilling experience if you take your time, plan financially, and buy for the right reasons.

One final point → You don’t have to go it alone. Having the right team of professionals to educate you and to support you in the process is critical to making the right choice. A knowledgeable real estate agent, mortgage loan officer, and financial planner (who can assess your entire financial picture) can help you navigate the home-buying process with less stress, more clarity, and greater confidence.

I am Brent Weiss, CFP®, Facet’s Co-Founder and Head of Financial Wellness. Facet Wealth is an SEC Registered Investment Advisor. The information provided is for educational and entertainment purposes and is not meant to be investment, financial, tax or legal advice. Investments have risks and there are no guarantees. Past performance is not a guarantee of future performance.