What To Consider When Buying a House

Too often, people buy a house because it’s part of the outdated American Dream or because of FOMO since everyone else they know is doing it. But this approach to purchasing a home is short-sighted.

When buying a house for the first time, wisdom encourages you to ensure you have enough savings and to make sure you understand the purchase process. However, the general approach to buying a house should be the same as evaluating any major life decision.

Start with First Principles

Before determining your budget, buying a house, and navigating the purchase process, take the time to tune out the noise and reflect on your motivations.

The questions to ask yourself are:

What problem am I seeking to solve by buying a house?

Are there better alternative ways to solve the problem?

Do I even need to solve this problem?

Common Scenarios

What problem am I seeking to solve by buying a house?

A Place to Live: Renting solves the same problem, so assessing the cost to buy versus rent is important. Specifically, are there any opportunity costs of locking up a down payment into an illiquid asset like a house? Ownership will always ensure that your money is going back into your own pocket regarding assets and building wealth, but renting may free up more liquid money needed for other life priorities for your family at the current moment. Layouts and utility of a living space can be changed by renting or buying, so that in itself should not be a huge deciding factor, either.

A Home for my Family: Renting may feel impersonal for this problem, but owning a house may not necessarily solve it either. Assessing what it means to have a home for your family is essential. Defining what evokes the feelings of home may lead you away from a home purchase and more towards time spent together or other solutions, leaving you with the financial aspects to consider. But you may have valid concerns, like wanting to customize aspects like a backyard for indoor/outdoor living if that’s important to how your family lives.

Are there better alternative ways to solve the problem? Do I even need to solve this problem?

If you already have a place to live that fits most of your needs, then this begs the question of why you should address a housing problem now. Why buy versus rent? There are a few reasons why this would make sense:

Better school districts: Typically, better school districts also come with higher rates of homeownership, i.e., there’s less inventory for renting. If you’re trying to get into a good school district, then buying a house makes a lot of sense because that means you’re investing in not just a house but in your children’s future, which changes the equation.

(Check out our other educational recommendations, like formal math and at-home programming.)

Rents expected to continue to rise: If you’re in an area with fast-rising or continuously increasing rent, buying in that area makes sense if you plan to plant roots there. This is speculative, so it would require a more analytical approach and looking at a range of possibilities of outcomes. When you have a fixed-rate mortgage, your monthly principal and interest payment is locked in for the life of the loan (often 15 to 30 years). This assures that your expenses will be relatively stable for the time you live in a house you own. This also means that at a future date, there might be a possibility for you to rent out the location as the spread between rents and your fixed costs allows you to turn over a cashflow-positive investment.

Plan to own for at least ten years: If you plan on living there or owning the property for more than ten years, other alternative solutions (i.e., renting or investments) may be a poorer use of your money. This time horizon is a healthy period to plan to purchase a place. Even if it is challenging in the beginning and potentially yielding a negative ROI in the near term. This also gives time for the ROI of the house to outpace the ROI from alternative investments. Real estate is almost guaranteed to increase in value in the long term, i.e., over decades. Buying stocks, treasury bonds, or bonds is also an investment option if your timeline isn’t as far out as real estate demands. Fortunately, a lot of financial data is available to help decide between these two financial options. Using data to determine the historical returns of a house in your area of purchase versus putting the same capital towards the stock market or bonds will help to inform if buying a house makes you the type of money you want or sticking with an investment right now is the best use of capital. You can even work with a free financial planner to help figure this out.

Building equity and generational wealth: One of the biggest financial advantages of homeownership is the ability to build equity over time. Equity is the portion of your home you own – it grows as you pay down your mortgage and the property value increases. With each monthly payment, you are essentially putting money toward an asset you can later cash in on rather than paying rent to a landlord with no hope of return. Over the years, this practice acts as a form of “forced savings,” helping families accumulate wealth. Once the asset fully becomes yours, it can be passed down for generations.

Things to Remember

Your home can be a place to live or an investment: Your home, first and foremost, is a place to live, to build a life with the people you love, and to create lifelong memories. The ROI of that kind of home is invaluable. Your house, however, can also be an investment; it’s a large sum of money you’re growing in terms of an asset. What your family wants in a house does not always yield a positive ROI on the market, but keeping updates within market value can ensure returns if that is a priority.

Your kids can still go to a good school district without you owning a house: Homes in good school districts can have a much higher premium, making it financially infeasible. However, rentals in those areas may be more cost-effective. Open enrollment may also be an option in your desired area. Good education is something that can be achieved regardless of housing status.

You can have the life you want without owning a house. Think about your life plans for the next several years. The life you want is not tied to whether or not you own a home. The life you want is defined by you. Before deciding to buy a house, write down what you’re seeking to solve by buying this house and if you have better ways of achieving that goal. Homeownership does come with the responsibility of upkeep, which can be overwhelming. It’s okay to shift priorities during different times of life.

The Full (Budget) Picture: Take an honest look at your income, expenses, and debts. Use a mortgage calculator to estimate what price range is comfortable for you, assessing your downpayment. Remember to account for all homeownership costs, not just the mortgage. These include homeowners insurance, property taxes, routine maintenance, and potential HOA fees. Remember, you’ll need an emergency fund for unexpected maintenance items. You’ll also need to ensure your credit score is high enough to get reasonable loan terms. Total these numbers to understand the whole picture and see if renting is the better call.

A Balanced but Optimistic Outlook

Renting can make sense for some people, especially if your family needs flexibility or is not ready for the financial responsibilities of homeownership. There are upfront costs and ongoing maintenance tasks that come with owning a home, and not everyone will find it the right fit at every stage of life. However, when you are really ready and able to buy, the case for homeownership is very strong. The benefits – from wealth-building equity to the simple pleasure of having a place to call your own – can far outweigh the drawbacks. Over the long run, buying a house in a prudent, well-planned way can set you and your family on a path of financial stability and personal satisfaction.

The key is to proceed with your eyes open: do your homework on what you can afford, understand the responsibilities involved, and make a plan for the future. It’s not just about having a roof over your head – it’s about building a better future and having a place to truly call home, regardless of ownership status.