This episode of the Finance Flash Go! podcast is about buying your primary residence.
Buying a home out of training especially in my mind requires you to really have a strict set of criteria that you follow for it to be the right financial choice.
The reason that my wife and I bought our first home is multifold.
But the bottom line is that we set a budget of what we could afford, created criteria for what we were looking for, and kept emotion out of it (ok fine…emotions were involved but we acknowledged them and kept them out of the decision-making process).
First, we had created our written financial plan and budget before buying our home.
A written financial plan and budget MUST come first.
The first things we factored into our budget were our “needs” and our savings, including loan payments. Once we set this number with a savings rate of 41%, we knew how much we would have for everything else, including PITI and other expenses for a mortgage.
Sure, you can use some rules of thumb in making sure you don’t buy too much house. The purchase price should definitely be less than 2x your annual income (ours is 1.2x our salary). Your annual mortgage to income ratio should be less than 28%.
These generalities are fine. However, I recommend setting a budget and knowing down to the dollar how much house you can buy. You’ll feel a lot more confident and relaxed in your decision when buying your primary residence.
Second, we set strict criteria for our home.
Much like with an investment property, we set criteria for the type of home that we were looking for when buying our primary residence. If a house didn’t meet this criteria, it wasn’t for us. Most home buyers let emotion dictate which houses they consider and like. We set these hard terms to limit the effect of emotion in our decision.
By following these criteria, we were selecting for a home that we knew we would want to stay for at least 10 years. As I’ve said before, the housing market is like the stock market – volatile in the short term but stably increasing in the long term. Buying a home that we were planning to live long-term, we maximized our chances of making a profit when we sold.
Also, by using a physician loan with 0% down, we would not need to sacrifice any savings or investments.
My wife and I agreed that if we didn’t find a house that fit these criteria, we would rent until we did.
Most importantly, I moved home.
This is probably the biggest qualifier of our decision to buy a house.
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