New grads: Wait 5 years to buy a home
It's the next 'big thing' but it can be a tremendous burden. Enjoy your freedom while you can.
Whenever my wife or I tell people what I do (personal-finance blogger), invariably one of the next questions they ask is if I have any stock picks for them. After I’ve explained that I don’t do that sort of thing, the next topic usually has to do with buying a house.
After graduating college, the next “big thing” on peoples’ minds is usually buying a home. My belief is that you shouldn’t buy a home within five years of graduating college or high school.
First, a little about my home-buying background: I bought a house four years after I graduated -- after living in a few apartments -- about six months before the height of the housing boom. I’m one of the fortunate homeowners who have seen their home prices remain the same (no increase, no decrease -- chalk it up as a win in my book!) but the reason I argue you shouldn’t buy a house within five years has to do with the nonfinancial reasons.
Don’t get me wrong, I love owning a home. I love owning our home. But don’t do it within five years.
Loss of flexibility. When you buy a house, you are putting down roots in the community and you lose flexibility in many aspects of your life. For the first five years of your professional career, your flexibility will be one of your greatest assets.
As you learn what you are good at doing and figure out what you really enjoy doing, you may want to change jobs or even careers. When you buy a house, you’re restricted geographically. That could mean that a great opportunity on the other side of the country is something you can’t pursue (easily).
Homes require maintenance. Maintenance, regardless of how handy you are, is both a headache and time sink. There’s a reason my friend Fred at One Project Closer never runs out of topics to write about. Things in a house break and you’ll have to fix them.
When you rent, the landlord is responsible if the roof leaks. When you own it, you are responsible if the roof leaks, and roof repairs are not cheap. In fact, we replaced our 18-year-old roof and it cost several thousand dollars.
Learn what you like in a home. In the five years, take the time to look around and see what it is you like about the places you live in. What do you dislike? Until you’ve lived in a few different layouts and setups, you won’t really know what to look for.
Do you really like a big kitchen or just like how it looks in photos? Will you really want a hot tub or do you just like the idea of a hot tub? Is a garage something you really love and can’t live without? Unless you’ve lived in places with these amenities, you won’t know how important they really are to you.
Burden of debt. A mortgage is a huge weight. As I said earlier, your first few years after graduation should be spent enjoying and exploring your freedom, not saddling yourself with tens to hundreds of thousands of dollars of debt. Believe me when I say that you can even be financially irresponsible for the first few years of your life, then buckle down, and still retire a very happy and fulfilled person. As long as your financially irresponsibility doesn’t rack up debt, you’ll be fine.
Waiting doesn’t hurt. Homeownership is wonderful, but it’s not the golden path to wealth. Before the housing bubble and subsequent burst, the general consensus was that the path to wealth was through homeownership. You heard stories of people selling their houses after 20 years and making half a million dollars in profit. It was wonderful!
Then people did some math and saw that homes generally appreciate in line with inflation. While you do generate some wealth in owning a home, since you are paying down the principal of a mortgage rather than into the abyss of rent, it isn’t what many made it out to be.
While it may be hard to hold back given the first-time homebuyer credit, which is pretty substantial, consider your options before jumping head first into homeownership. Owning a home is very nice, but renting is nice too.
Related reading at Bargaineering:
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