Money Rehab with Nicole Lapin - Listener Question: “Is buying a house actually a bad idea?”

Episode Date: April 14, 2021

Buy a house, they said...  It’s a great investment, they said… Nicole tackles the hard questions around whether you should actually buy a house, and some of the reasons you may want to put it off for a while. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like a full-scale check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. One of the most common questions I get asked is about buying a house.

I get it. A house is more than just bricks and wood and mortar stuff or whatever houses are made of. That is not my jam. But buying a house is, and sometimes it's just not the right time for you, specifically you. No matter what other people are doing, I know it can feel like everybody's buying a house. This is the way to financial freedom. It can be, but honestly, it's not for everyone. And it's not for everyone at every point in their lives. For all of these reasons, a home should not put you into financial prison. I get it. It's security. It's a nest. You want to nest your face off, but I am not going to allow you to be house poor. It can be a good financial move, maybe, but maybe not. So let's figure this out

together. Kristen from Baltimore asks us this question about home buying. I've been seeing some of the people I went to college with posting pictures on Facebook about buying houses. And so now, of course, I'm wondering if I should be too. How do you know if it's the right time to buy a house? Ah, Kristen, Kristen, Kristen. So with interest rates slashed, Kristen and a lot of folks who are writing in and chiming in on this really want to get a house. I understand that it seems like a great time to buy a house with interest rates super duper low.

I don't think they can possibly get lower, but crazier things have happened. So all of this instability in the world, sellers might be forced to sell at large discounts, right? Think 10 to 20% below fair market asking price. So you're like, oh, I want to pounce on this situation. It is possible that you could find a deal, so to speak, that works. Just keep in mind, ultimately, a home is what somebody is going to pay for it. So don't get brainwashed into thinking that you're going to make a killing off a home. A home is a place to live.

It is not a place to make money. Yes, I'm going to say that again because it's so, so important. A home is a place to live. It can be a good investment in your life. It's not necessarily a good financial investment. And in fact, you can end up spending a lot more money that you'll never, ever get back. So think about really seriously, when for you is it a good time to buy a house? And I have three hell yes questions you have to answer hell yes to before even thinking about buying a house.

This is seriously a quiz. Number one, are you going to live in this house for a while? The answer, again, must be hell yes. Life unexpectedly happens, of course. I mean, this pandemic is pretty clear evidence of that. And if you don't know that you're going to live in this house for a long period of time, 10 years, let's say, or if you're going to need that cash soon, you should not buy. Period. End of story. A house is an asset, but it's an illiquid asset. So what does illiquid mean? I mean,

essentially, it's hard to melt, so to speak, into cash when you need it. And if you need it, sometimes you're forced to sell it at a loss because you're desperate. We don't want to be desperate. Number two, can you afford it? I mean, really, really afford it. Typically, you need 20% of the cost of the house to put down as a down payment. But you can't look at that in a vacuum. You can't be like, okay, great. I want to buy a $100,000 house and I have 20 grand, but also I have student debt and I have credit card debt and all this other stuff. That is the stuff we need to think about first. So even though you have 20 grand, it's not like you should be putting that toward the down payment just because you have it. I mean, dude, there are more important things to think about in your priority list.

Debt must be gone. So emergency fund must be in the bank. Then let's have a home buying discussion. Numero three, do you have a steady job that you love? love. Seriously, job uncertainty makes it a terrible time to spend so much money on such an enormous purchase. Whether you're unhappy in your job or just these crazy times has put your job in jeopardy, the bottom line is if you're in the market for a new job, you should not be in the market for a house right now. You're in a precarious situation and you don't want to get to a place where you have to fire sale your house to buy groceries. You cannot

go to the grocery store with your mortgage. That's not how you buy apples and whatever you're buying at the grocery store. You know, if it sounds like you might not have a consistent income, you should be leaving the door open, pun totally intended, for any opportunity that might come up, which means like you could take a job in another city and that could be right for you long-term. You don't want to feel tied down to a house because you quote unquote bought it, right? So how did you do on those three things? There are more, of course, but for now, those are the three golden rules that I need you to say hell to the yes to. And if you did, yay, mazel tov. The current climate

is a good time to buy a house if it's a good time for you personally, if you yourself are positioned for it. So go forth and shop around if that's the case. Amazing. I mean, stay tuned to more episodes about mortgages and closing costs and all that jazz. I mean, if you want to talk about renting versus buying, we will have that discussion. There's a lot of stuff with home buying that you're not going to get back either. Because folks often say like, renting is throwing money away. Well, yeah, you don't get a lot of stuff back when you put money into buying a house anyway. Those closing costs,

like you'll never see those back either. So there are a lot of misconceptions out there and there are a lot of misconceptions about how much money a house can grow because people forget about that thing, inflation. Like grandma bought a house when it was 50 grand and now it's worth 250 grand. Like when grandma bought that house,

movie tickets were 5 cents or something like that. People are forgetting that 50 grand back then is not 250 grand back then. And so we have to really rethink this home buying discussion because there are so many misconceptions about it. So bottom line, if you checked off those three things, if you have no debt, if you have an emergency fund, you could be in a good position to buy your home. Just because you're not positioned to buy a house right now doesn't mean that you never will. I mean,

it just might be a no for now, not a no forever. It also doesn't mean that you never will. I mean, it just might be a no for now, not a no forever. It also doesn't mean you're financially insecure. A home is not the thing that makes you financially secure. There are a lot of other things that can help you grow wealth. Of course, keep listening to Money Rehab and we will help get you into house buying shape if that's really, really what you want and you think you're going to be somewhere for a long time. But in the meantime, there are benefits of renting and you could enjoy not being your own landlord, like not having to fix all the stuff because that stuff also costs a lot of money and when you're renting, somebody else pays for that. So it's okay until you're ready to take that next step. I'll be here holding your hands together. We're going to take the steps together.

For today's tip, you can take straight to the bank. Have a heart-to-heart with yourself. Ask yourself, honestly, can you realistically afford this house? Are you going to live there for a while? And do you have a steady job you love? Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with

help from Josh Fisher. Executive producers are Mangesh Hatikadur and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all. You spend my money, money. You spend my money, money, money. You spend my money, money, money.