Welcome to part 3! We’re almost done—only one part to follow of book tour knowledge, focusing on perhaps the most juicy, controversial, and inexplicably emotional tenet of money: relationships and gender.
First time visitor to the series? Make sure you check out Pts. 1 and 2, dealing with LOANS, DEBT, AND SAVING and FINANCIAL ADVISING respectively. They'll serve as a warm, soft, cuddly foundation for the cold hard truth below.
And of course, my disclaimer regarding the validity of the information below (because I'm sure you don't necessarily want to take investment advice from someone who writes puns about bags flying free for a living):
I'm merely passing on the brilliance of Manisha Thakor, a Harvard MBA, CFA, and CFP® who’s nationally recognized for her expertise on financial wellbeing. Manisha's the VP of Financial Education at the Seattle-based wealth management firm, Brighton Jones.
All right, pleasantries out of the way. Let's get down to business.
When it comes to home buying…
This is a loaded question and one that I’ve grappled with a lot since understanding how expensive rent can be and how it adds up over the years (you may recall my post about what it’s like trying to buy real estate at 23 and my horrifying realization that by the time I’m 30 I’ll have sunk approximately $100,000 in rent).
A little history lesson: home ownership became a true mark of wealth and prosperity during our parents’ parents’ generation (so, our grandparents). These were periods of high inflation—people were getting annual raises of 8-12% every year, and there were only two mortgage options: 15- or 30-year fixed.
So as your income steadily rose over time, your mortgage payments stayed low. By the time your kids were grown, your house was paid off. Not to mention our grandparents didn’t have nearly the amount of investment vehicle options we have today—a house was how you became prosperous.
Fast-forward to now, especially in hot housing markets. Not only are most of us not seeing astronomical raises annually, but there are so many different mortgage options out there that some people become entangled in these variable rate mortgages and secure loans for homes they can’t actually afford (hello, 2008).
All that to say, Manisha said buying is ONLY better if you can comfortably put 20% down AND you can go with a 15- or 30-year fixed rate AND you intend to live in that home for at least 10 years.
I immediately thought back to all the condos I was looking at in the mid- to high-$200s range. 1,000 sq. ft. of modest 2BR-2BA bliss for $250,000 is very much the norm in Dallas, and that's a cool $50,000 down if we're talking about 20%.
I don't know about your situation, but I ain't got $50,000 at my disposal. And if I only put 10% down, I'd be borrowing 90% from the bank—not a great start for my first property—and paying a hefty interest rate since my credit history is only a couple years old.
Which brings me to a segue topic that will apply to all of you, even if home-buying isn't in your near future: credit. Let's get into that next week!
There are so many other investment options out there that don’t require a $50,000 down payment. (And, by the way, your $250,000 house usually ends up costing closer to $500,000 over the course of your mortgage thanks to your interest rate—something to think about.)
Plus, the property taxes in the state of Texas are also very high, a cost you don’t directly incur as a renter. To give some anecdotal insight as to what I mean by “very high,” a home valued at about $2 million in the nice Dallas suburbs sees about $40,000/year in property tax.
If you’re struggling with this decision right now, this is an absolutely incredible free tool: The New York Times ‘Rent or Buy?’ Calculator. This will now be a permanent staple on my blog’s side bar in this section for easy access.
In short, Manisha’s insight made me feel decidedly better about not being able to afford to buy yet. Join me for my last series post later, LOVE AND MONEY, and come back next week to learn all about credit, my favorite credit cards, and the ins and outs of why they're a non-optional staple in your wallet.
You can check out the book here and take this little journey with me. Let's get money-woke, friends!
The young woman's money guide to all the things you're too embarrassed to ask your friends. Build the life you thought you were too broke to afford through managing your spending habits, travel hacking, and simple, smart investing.
Full-time Brand marketer at Southwest Airlines, part-time Yoga Sculpt teacher, occasional Waffle House Model and reformed materialist.
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