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The Five Fundamentals of Fiscal Fitness: #4 Being "Properly Housed" Thumbnail

The Five Fundamentals of Fiscal Fitness: #4 Being "Properly Housed"

Open Window's Five Fundamentals of Fiscal Fitness

    1.  Save a 'good portion' of your income each year and maintain adequate cash liquidity.

    3.  Fully fund your retirement accounts.            

    2.  Avoid bad debt while managing good debt. 

    4.  Be properly housed.

    5.  Maintain very basic insurance to protect your health, income, and property.


Let's explore #4 - How to be "properly housed":

Should you rent a place to live or make a purchase?


Most people are better off buying over renting, but don’t rush it

If you're paying rent to yourself as a homeowner, you might come out ahead financially. But there is no guarantee. 

Renters have valuable options too. They might face higher costs over time, but they also have the flexibility to break or end a lease, especially with unexpected changes (job/health/life choice).

Renters don't pay maintenance or upkeep expenses. They might even have more modern accommodations if their units are maintained to be attractive within the rental market.


When you're ready to buy a home, take it slow. Your home is one of the most significant investments you will ever make.

 

DON’T BUY TOO SOON 

To put the odds in your favor, make sure you don’t buy until you’re sure you’ll live in an area for 5 years, or longer. 

Don't feel pressure to buy based on rising prices or even great interest rates. Those considerations should come after a careful examination of your situation and the potential costs and benefits of a change. 

 

DON’T BUY TOO MUCh

Consider buying a home with a value of 2 or 3 times your annual income.

You can use the 30/30/3 rule, as a basic starting point, but be careful. We see these figures as limits, not rough targets.

You can also estimate the cost of homeownership and affordability here (and make sure to include homeowner’s insurance and property taxes in the equation). 


Get a 30-year mortgage (and don't rush to pay it off)

Seek a mortgage of at least 50% of the home's value (ideally up to 80%). Be careful, you will likely be offered more of a mortgage than is reasonable to accept. 

Paying off your mortgage early is a trap. Read our thoughts why here. 

 

INCOMe Matters More than Assets

Mortgage providers look at your income, and largely ignore your assets. You could have plenty of money, but without a job you might have a hard time getting a mortgage. 

You're usually considered a good candidate for a mortgage if you can show consistent earnings on two years of tax returns. 

For those approaching retirement, consider applying for a mortgage before you leave your job and while you still have current income. 

Yes, we will say that again: Even those with plenty of money AND those approaching retirement are likely making a smart financial move by obtaining a mortgage. 


Paying off your mortgage early is a trap. Read our thoughts why here.