I know that the American Dream has always been to get a good job, get married, have children, and then buy your dream home! However, the more people are becoming familiar with the concept of financial freedom, the more people realize this may not be the dream they want for themselves or their family, at least not how it has traditionally been done in the past. People are starting to be very careful on their first home purchase, and this is a great thing!
Deciding to purchase a home is a personal decision. Where you purchase and for how much will depend entirely on what you value but if financial freedom is your ultimate goal, you want to follow these rules when purchasing your first primary residence!
Buy Below Your Budget
So you’re a first time homebuyer and you’ve been pre-qualified to buy a home up to $350,000.00. While this is exciting, try to be as conservative as possible when buying your first home. You don’t need to purchase at the top of your budget and here’s why!
- Expenses. With a bigger home comes more expenses. So although you may be able to afford the actual home you have to make sure that you can afford the added expenses that comes with it. A big fancy home usually comes with the purchase of expensive fancy furniture and decor that would more than likely take you away from the ultimate goal of wealth building!
- Opportunity Cost. Another thing you want to consider when making the decision to purchase your first home is the possible opportunity cost. With the exception of house-hacking and the brrr strategy,most home purchases will initially be an expense. When you purchase a home at the top of your budget you have pretty much tied yourself down to this property while watching several investment opportunities pass you by.
Leave Your Emotions At the Door!
If you are serious about obtaining financial freedom and building real wealth, your home purchase should always make financial sense, meaning it can potentially be an asset to you now and later!
Does is follow the 1% rule if you were to rent your home? *The one percent rule is that the gross monthly rent should be at least one percent of its final price.Don’t fall head over heels with any property that cannot work as an investment vehicle for you!
- Don’t fall in love with appearance. You go out looking for a home and you find a house with the perfect master suite, walk in closet, and the subway tile you saw on Flip or Flop that you just love! Only problem is that the house is over your budget. Walk away and don’t think twice! A home that is over or even at the top of your budget, no matter how nice, will not get you to financial freedom!
- Don’t get caught up on location. Being in the most ideal location in any city can get pretty expensive! If you were not fortunate enough to purchase before real estate prices went up in a coveted location in your city, you might want to consider buying outside of that area for your first home purchase or even holding out altogether until prices go down.
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I know home ownership used to be a symbol of success but the information age has caused more and more people to realize financial freedom is the real dream and it’s more attainable than most people thought possible. With that being said, you want to be very careful before making the decision to purchase you first home, if building generational wealth is a goal of yours. Ask yourself the following questions before you make the final decision to buy.
- Can you really afford it? Sure, the bank will approve you for a specific amount and your real estate agent has sold you on it, however they only have a snapshot of your finances. Only you truly know what you can actually afford. Things you want to pay close attention to is the interest rate and where the mortgage payment puts you in regards to your budget.
- Does it align with your investment goals? Anyone who is serious about financial independence understands that you have to save and invest aggressively in order to obtain it! A larger mortgage payment takes away from the amount of money that you can invest and save. Does this home purchase align with those goals? If not then you may want to reconsider buying until you find a home purchase that does.
Again, making that decision to buy your first home will be a personal decision that will essentially be based on your personal financial goals! Below are some great book recommendations on this subject that may be useful to you if you are considering purchasing your first home while simultaneously trying to reach financial freedom!
- Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
- The Book on Rental Property Investing: How to Create Wealth and Passive Income Through Intelligent Buy & Hold Real Estate Investing!
- Set for Life: Dominate Life, Money, and the American Dream.