We all know that an important part of *adulting* is buying and owning a home. But the cost of homes here in SoCal leads many would-be homeowners I talk to, to question that. How about you?
If you are on the fence about whether it’s important to own a home, this article is for you. I asked my friend and the best financial advisor I know, John Simon, President of Pacific Capital Associates in San Diego to help us understand why owning a home is an important part of securing your financial future. So, read on for his super helpful financial advice!
Me – Is being a home owner worth all the effort and cost? Why?
John – Yes, owning a home is important to building a secure financial future for a few reasons:
By owning you are securing a fixed cost of housing. This is a big part of establishing a sustainable budget.
Nobody can pull the rug out from under you by raising rent, evicting, or telling you what you can or can’t do (at least not nearly to the extent that it can happen when you’re at the mercy of a landlord).
It’s a form of forced savings since each month you are putting some money into the equity of your home. Someday, you will be able to access that or pass it on.
Capital gain potential. Over the long-term, homes are likely to rise in value, even if just due to inflation as the fundamental factors that prices are based on (rents and incomes) are likely to continue to rise as the years go by.
Between the equity one puts in and capital gains over the years, a home is likely to become a significant asset and a key part of one’s eventual financial independence.
Me – So, how do advise clients to know when they are financially ready to become a homeowner?
John – There are two main financial pieces you need to have in place:
Roughly 6 months of living expenses in savings even after the down payment and closing costs. You need to be able to weather an unexpected financial need without missing mortgage payments, being penalized for accessing retirement accounts, or having to sell the house at, potentially, an inopportune time.
Me – What about getting together a down payment and choosing a mortgage? What do you recommend?
John – You want to make sure you choose a home with a mortgage payment that fits into a balanced budget where you are not piling up credit card balances each month. Get yourself into a payment that is part of a sustainable budget that includes saving in retirement accounts, college accounts (if applicable) and liquid savings. This way you won’t find yourself feeling “house-poor,” which is what can happen if every dime is going to support a mortgage payment that is higher than you can really afford.
Regarding our housing market right now, as a financial advisor I would suggest making sure that you are buying a place that you can imagine staying in for 10+ years. Prices are high, but rates are still relatively low compared to history and that combo results in monthly payments that still make sense for the buyer. If rates were to rise further, it could be a headwind for home prices, but that won’t matter as much if one isn’t looking to sell in the short term – say the next 5-7 years.
Regarding the down payment, if you’re going to buy within next couple of years and you’re saving for a down payment, a high yield savings account or CD at the bank is what we advise.
Such great advice, John! Thank you so much! I wholeheartedly agree with John’s advice and would add that often when we look at rents and mortgage payments for a similar home, the mortgage payment will be similar or even lower; plus, you get the benefit of building equity for your financial future.
You likely have lots of other questions that we didn’t discuss here that John and I would be happy to answer for you about homeownership, such as dealing with credit issues and help getting your down payment together. Feel free to write them in the comments or reach out to us privately. You can reach John at 858.560.5244 or by visiting his website: www.pcasd.com. I’m available at 818.307.6072 or our website at: www.pacfimortgage.com.
We look forward to hearing from you!
Until next time.
More about John Simon:
John has a bachelor’s degree from UCLA and a Juris Doctorate from the University of San Diego School of Law. He holds the CERTIFIED FINANCIAL PLANNER™ certification as well as licenses in securities, real estate, and multiple forms of insurance. He and his company, Pacific Capital Associates, manage over 200 million dollars in clients’ accounts and provide comprehensive financial planning for their clients.