How To Buy A Home In The Next 5 Years

Photographed by Matilda Hill Jenkins.
For many people in this country, home ownership is still inextricably linked to achieving the traditional American Dream and becoming a "real" adult.
Buying a home obviously takes much more work than simply putting it on your list, but not getting there by age 30 doesn't mean you carelessly frittered your money away à la Carrie Bradshaw.
Single women are buying homes at a faster rate than single men, but the overall rate of homeownership in the U.S. is still at near-historic lows. Part of of that, U.S. News indicates, is because many Americans are much less stationary than they were in the past, and young Americans prioritize experiences like travel over sinking funds into property.
Others who would like to put home buying first are far away from being able to afford a down payment and find navigating the process "overwhelming." Nonetheless, Nerdwallet's 2018 home buyer report shows that 75% of Americans say buying a home is a priority — even if they aren't sure how they'll make it happen yet.
In the hopes of demystifying the process, investment platform Wealthfront created an in-depth home planning guide to help users gauge their own prospects.
To start, indicate whether you're more than five years away from taking the plunge, plan to make it happen in less than five years, or will be ready to go in the coming year. For those in the first category (who are farther away from such a decision) the guide breaks down what it actually means to buy (and sell) a home; what doing so looks like in the context of other financial goals (for example, "paying down high-interest loans ... with interest rates greater than 6%, such as credit card loans or student loans," and contributing to a 401(k) plan); and what the tradeoffs might be on retiring by a certain age.
For those in the second category (who aim to buy a home within five years), the guide presents the myriad costs and fees associated with home buying. Beyond the down payment, there are closing costs, property tax, insurance, and more.
There's also a breakdown of renting versus buying in major cities, and a primer on what to expect in the event of a market downturn.
"If you have a fixed-rate mortgage your monthly mortgage payments should not be affected by any market volatility," Wealthfront explains. "However, you are at risk if there's a significant drop in real estate prices and you have a sudden need to sell your home, say for a job opportunity in a new location. In this case, you may be forced to sell your home at a loss."
Instead of being turned off by that possibility, which may be out of your control, focus on what you can do: Being as financially ready to invest in a home as possible before making such a choice. Aside from a nest egg, emergency and retirement savings, and other recourses, that also means not buying more home than you can afford.
Finally, those ready to put their money down within the next 12 months are presented with a checklist for qualifying a mortgage: keeping your credit score up, your debt-to-income ratio low, and making a larger down payment (at least 20%) if possible.
"If your down payment is lower than the standard 20%, not only will you have higher monthly principal and interest payments, but many mortgage lenders may require additional mortgage insurance, which can be up to 1% of your total mortgage value," Wealthfront explains. "Not to mention, if you put less than 10% down, you may have trouble qualifying for a mortgage at all."

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