Should I Buy a House Now?
If you are recently married, your emotions are likely redirected to believing there’s no better time to buy your dream home. Get a job, get married, buy a home, and have a baby; many couples see this happening all around them and want the same right now and in that order.
It’s what the Joneses are doing, so it’s what we should be doing. Right?
Deciding when to buy a home is one of the biggest decisions in your marriage. Your marriage.
Don’t let the Joneses influence what’s best for your marriage. Rather, use the following criteria to create a pros and cons list to decide as a couple.
The criteria for buying a house now
✅ Will we be able to withstand the financial burden of purchasing a home in the first 5 years?
✅ Are we prepared for the stress of moving and moving costs?
✅ Can we survive a drop in home prices?
✅ Can we survive a job loss?
✅ Is our total monthly housing cost lower than 25% of your net monthly household income?
✅ Do you know how to have productive money conversations with your spouse?
Will we be able to withstand the financial burden of purchasing a home in the first 5 years?
Let’s keep this simple. The median sales price of new houses sold in March 2024 was $430,700.
Assuming the average additional financial costs incurred,
You’ll spend anywhere from $270,914 - $326,474 in the first five years of home ownership.
Below is a detailed explanation of the financial costs we used in calculating the average cost of the first five years of home ownership.
Down Payment
$86,140, assuming a 20% down payment on a $430,700 home.
Are you saving for a home? We use Raisin to select the highest yield savings account.
Closing costs
Closing costs run from 2% to 7% of the home’s purchase price. The median sales price of new houses sold in March 2024 was $430,700, bringing the average closing costs of those homes to $8,614 to $30,149.
Buyers and sellers often share closing costs and expenses, an important consideration when negotiating a purchase.
The rough estimate: $20,000
Realtor fees
The national average of realtor fees is about 5 percent of the home’s sale price, with 2.5 percent going to the listing agent and 2.5 percent to the buyer’s agent. However, those fees could come down a bit following the outcome of a class action lawsuit, but according to the Urban Institute, it will help first-time homebuyers the least.
The rough estimate: $10,000
Property Taxes
Like all other financial variables, this is a rough estimate. We wrote more extensively in a previous post, Why Property Taxes Should Factor into Your Home Buying Decision. A very conservative rule of thumb for the purchase of the average cost of a new home is a couple thousand a year.
The rough (and conservative) estimate over five years: $10,000
“Wasted” mortgage payments
The first five years of homeownership are risky. The housing market is unpredictable.
A common argument for buying rather than renting is that you will build equity in your home. The lower the mortgage rate, the more equity you will build, assuming the value of your home remains unchanged.
As we illustrated below, the fixed interest rate you secure matters a lot. You can calculate the impact of interest rates on your loan options now using the Bankrate mortgage calculator.
The rough estimate is a range between $88,260 (3.1% APR) - $143,820 (7.45% APR)
Home equity is too difficult to predict
Furniture
Do you ever make a big purchase and feel liberated to keep buying, feeling less constrained? The Diderot Effect is real, and it occurs when a new possession is purchased, creating a spiral of spending, which leads to buying more things.
After purchasing a new house, I've seen this firsthand in my own and friends' homes. At least one spouse wants to buy new furniture, paint (unnecessarily), and appliances.
According to Realtor, buyers of new homes spend an average of $9,288 on property alterations and repairs following a move. They also spend $5,122, on average, on new furniture.
The rough estimate: $15,000
Maintenance
The maintenance costs vary widely based on the age and condition of the home when it is purchased. In our previous post, The Costs of Buying and Renovating an Older Home, we outlined the average costs of an older home.
For the sake of simplicity, let’s assume you purchase a newer home with lower maintenance costs.
The rough (and conservative) estimate over five years: $5,000
Homeowners insurance
The national average homeowners insurance cost is $2,151 per year — about $179 per month — for a policy with $300,000 in dwelling coverage. As you can see, these costs can vary based on your location.
The rough estimate over five years: $10,755
Utilities
According to the Consumer Expenditure Survey by the U.S. Bureau of Labor Statistics, the average cost of utilities per year is $5,151.96.
The rough estimate over five years: $25,759
The total average cost over the first five years of home ownership
Total average total cost of the first five years of home ownership:
$270,914 - $326,474
Are we prepared for the stress of moving and moving costs?
We moved twice during Covid. Twice. The second move was a terrible experience that created significant stress in our home.
The older you are, the more possessions you’ve accumulated and the more friends you’ve made. Leaving a support system can be scary, especially when you have children who have friends.
Moving also has a financial cost, which varies significantly, from as little as $300 to as much as $12,000.
Can we survive a drop in home prices?
Housing prices do drop. When they do, there’s a chance your home could be underwater, particularly if you are a new homebuyer.
If your mortgage is underwater, you owe more on the home than you can sell it for. Roughly one in three homes were underwater during the 2008 financial crisis, a problem that persisted for some homeowners for a decade.
Before purchasing a home, discuss with your spouse whether your family can financially survive a drop in home prices.
Can we survive a job loss?
The unemployment rate hit 10% during the 2008 financial crisis, and took years to recover. Every decade or two the labor market will experience significant spikes of unemployment.
Bear in mind that a strong relationship exists between higher unemployment and declining housing prices (or vice-versa).
Will your housing costs be too much to manage in the event of a job loss?
Is our total monthly housing cost lower than 25% of your net monthly household income?
A common recommendation is maintaining housing costs lower than a third of your gross monthly household income. However, the lower your fixed costs, the easier it will be to manage the unpredictable challenges you will face in the future.
There are some areas of the country where finding a home in a safe neighborhood that meets the 25% net monthly income is impossible, which means any other common fixed expenses should be reduced, as an example, the cost of an automobile.
Do you know how to have productive money conversations with your spouse?
The information included in the post is only useful if you approach the conversation with your spouse the right way. Set aside time when your emotions are low. No distractions. Talk in a relaxed environment.
Purchasing a home can be one of the hardest decisions you’ll make as a couple. Deciding how to move forward won’t happen after one conversation, and it’s unlikely to happen easily.
Draw from some of the recommendations for productive money conversations with your spouse provided in our toolkit by some of the nation’s leading experts:
Money Dates, Dr. Megan McCoy, AFC®, CFT-I™
Financial Infidelity, Dr. Michael Thomas
Your Money Beliefs, Dr. Bruce Ross, AFC®, CFT-I™
How to Listen, Ed Coambs, CFT-I™, and CFP®
Values Driven Goals, Brian Page, M.Ed., CPFFE
Opposites Attract, Dr. Jessi Streib
Financial Trauma, Rahkim Sabree, AFC®
Professional Help, Aja Evans, PC, AFC®, CFSW
Click here for the full list of professionals who contributed to the Transition to Marriage Toolkit.
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