God has designed us to be conduits through which his generosity flows. Therefore, we should carefully consider our financial decisions. One of the big decisions you will face is whether or not to buy a home. For many, they perceive homeownership as a right of passage into adulthood. It is not. It is a good decision for some, but not for others. Homeownership should only occur only when it makes financial sense. How do you know when you are ready? Let me give you three questions to which you must answer “yes” before purchasing a home.
- Do you plan on living there for at least 5 years? Any possible financial gain from owning a home can be destroyed in an early move. The purchase of a home comes with several upfront costs. Overcoming these costs takes time. Additionally, most of your mortgage payments are going toward interest in the early years. Needless to say, there is not much gained in the first few years. The financial benefit of homeownership comes with time. If you are planning to move within 5 years, stick to renting.
- Will your mortgage payments be less that 30% of your after-tax pay? Do not place yourself in a position where you are house poor, where all your money goes to pay the mortgage. Give your finances the flexibility for you to live a life of generosity. If your after-tax pay is $6,000 per month, I recommend that your mortgage payment should not be any greater than $1,800 ($6,000 x .30).
- Do you have at least 20% for a down payment? If your mortgage is more than 80% of your home’s value, you could get slapped with private mortgage insurance (PMI). This is an additional monthly fee lenders charge because you are considered a higher-risk borrower. PMI is to protect the lender not the borrower. That’s right. They think the way you are borrowing is risky. Take note. PMI cost you between .3% and 1.5% of your original loan balance every year. Don’t be considered a risky borrower and put yourself in the position where you have to pay PMI.
If you can answer yes to these three questions, you might be ready for homeownership. But don’t forget to consider all the other costs associated with owning a home. Remember, it will be your home. No more landlords to call when the hot water heater breaks and floods your house. You have to pay for it. And, yes, I know this from experience.
Steward your resources wisely. Don’t purchase too much or too soon. Make the wisest financial decision possible so you can be as generous as possible.
Written by Art Rainer, member of the Summit Stewardship and Generosity Ministry Leadership Team.
The Summit offers a variety of stewardship classes to help equip you to become a faithful steward.
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