Dear daughter,
I’ve seen this question over and over. I want to tell you my point of view considering that I made my share of impulse decision-making around this topic.
There are two ways of buying a house. The first one and probably the most common is to get a loan from a bank, this is called a mortgage. The second is to save and only buy when you have all the money (or most of it).
Which one is better for you? Only you can decide.
On my side, I can tell you that I currently have a mortgage and I don’t like the feeling. It feels good to have more freedom in the house (when you rent you cannot renovate or change things), but the fact you must pay for an extended period to the bank and the high-interest rates is sometimes overwhelming.
Let me show some numbers so you can see it better. I have a mortgage now for two years. Up to now, I have paid a certain amount in monthly installments (yes, I keep a record of it). Of the total amount I have paid to the bank, 76.83% percent went to the interest payment and only 23.17% went to the principal. If you still not sure of what is the principal and the interest and how you can calculate the numbers, you can read this.
It is painful!
That interest is part of your hard-earned money that goes out of your pocket, to someone else pocket.
I just feel that I’m losing too much money because I couldn’t wait to buy my house.
As I always tell you, only the numbers tell you the truth in a financial decision.
Once you decide if you want to get into debt to buy a house or wait and save to buy in cash, there are a few other things to consider.
In my opinion, the next most important condition is whether the real estate market is high or low. As with other markets, the housing market goes up and down.
Why does it happen? There are many reasons but mostly happens because of a change in the supply-demand relationship.
If the market is insanely high, then it is better to wait until the prices are better.
Another thing to consider is if you already have an emergency fund. Emergencies do happen and you need to be prepared.
If you have debt, of any type, I won’t recommend you buy a house even if it is using cash. First, pay all your debts. In other words, put your financial house in order.
Once you don’t have any debt and you have a proper emergency fund, then you can start looking to buy a house using the way that is best for you in your current situation: debt or cash. Hopefully, it will be cash, but as said earlier, only you can decide which one is the best option for you.
Love you, Dad.