Answer These Five Questions Before Buying a House

So how am I planning ahead to buy a house? Well, here are 5 questions I'm asking myself, and I recommend you do the same. Question number 1: Will I live here for 10+ years? That's because when it comes to all the costs that you will incur, including those transaction costs and closing costs, you want to amortize or spread them out over 10 years. Question number 2: Will my total monthly housing costs be less than 28% of my gross income. Why 28%? Well, typically that was considered a good amount to manage risk. It's really hard to stay below that number. So maybe in a high cost of living city with low amount of debt, you can stretch it 32%, 33%. But you want to be very careful because the higher you go, the more risk you have and the less you will be able to have any money to do anything else. Question number 3: Have I saved 20% for a down payment? I'm not saying you have to put 20% down, but saving 20% down is a signal to yourself that you can actually save money consistently. And that is something you will have to do once you own a house. Question number 4: Am I okay if the value of my house goes down? So you should not buy a house if you are thinking it's going to be a magic way to get rich because for many people it's not. But if you're buying a house saying, look, I've calculated the numbers, I'm okay if it goes up or down, I'm buying this as a house, a place to live, that's a good sign that you might be ready. Question number 5: Am I excited about buying? Do you know how many people I speak to who just feel so beaten down because everybody around them has told them, you should buy a house, you're a failure until you buy a house? You are not a failure if you rent. Now, if the answer to any of those questions is a hard no, then it's probably not the right time to buy.