The American dream of home ownership has been indelibly etched in our minds and hearts for many years in our society. While I do believe that home ownership is great for most families over the long run, a huge mistake your professional 20 something’s make with their family finances is purchasing a new home before they are truly ready to own a home. Home ownership will be by far one of the largest purchases a young professional will make in their lives. Why is it so easy for professionals at this age to make this common yet surprising mistake?
- Debt Is Cheap- Sometimes, we let the tax tail wag the dog and with all of the press on interest rates being historically low, the young professional is feeling pressure that it could be now or never. Consequently, many of them are making these purchases without considering short term and long term financial ramifications.
- The Total Obligation Ratio- Many individuals in their 20’s aren’t considering the weight of the student debt and credit card debt they carry when they buy a property. In many cases because a starter home might be $300,000 for them, they underestimate the overall strain a mortgage (as well as home improvements) will put on their finances in addition to their other financial debt obligations.
- Job Moves- Many 20 something’s will make a job move within the first five years to another city. They truly don’t consider the costs of exiting a home purchase (i.e. seller costs, etc.), and what this might mean to them if they have to move to a new city for a job.
- They Think It Is Easy To Rent- Although the renter’s market is very hot, we know how this can go in cycles. Far too often, the 20’s professional will assume that it is easy to rent and maintain a rental property if they move. Just wait until the pipes burst during a cold weather spell like we are having now, or you get a renter who damages your property. If it was easy, everyone would be doing it like clockwork.
Home ownership can be great for most people throughout their lifetime, but for the young and ambitious professional, be very careful before you dip your toe into buying your first home.