It May Be Time to Buy Your First Home When....

So much economic data - but what does it all tell you about how to live your life?

For example, when is the right time to buy your first home? Even if you could tell when mortgage rates weren't going to go any lower and home prices were poised to take off, you probably don't have the luxury of picking the optimum real estate conditions to buy a house. For most, the decision to buy that first home comes down to what is going on in their lives at the time, not what's going on in the Wall Street Journal.

Here are some examples - cues you won't find on in a financial publication that might be telling you it's time to buy a house:

  1. Your first big raise. Once your career is underway, you should develop a certain financial balance - you know what your expense are, and you earn enough to meet those expenses. A big raise can throw that balance off, in a good way. Suddenly, the money coming in exceeds those expenses. Naturally, you could just start spending more, but soon you'd be back where you started, with your cost of living raised to the point where you just barely cover it. Instead, why not take that extra cash flow and invest in the future by starting to build equity in a home?
  2. Paying off your student loans. Federal Reserve figures show that US student load debt topped $1 trillion in 2011 and has just kept climbing since. So, paying off those loans is a burden most students graduate with these days. Once you get through it, you'll suddenly have some extra monthly cash flow - it can feel just like getting a raise. If you put that money towards buying your first home, you won't really miss it because you never got to use it before, but now you will be paying yourself by building equity rather than paying some student loan company.
  3. Maxing out your 401k contributions. Saving for retirement is important, but there are limits on how much you are allowed to put into a 401k plan in any given year. If you find yourself wanting to save more than that maximum, consider investing in your future in a different way, by putting that extra money towards payments on your first home.
  4. When your rent gets raised. Real estate is a funny thing - home prices and rents are related on some level, but they often move independently of one another, and in some areas there is a huge disconnect between rents and proeprty values. If you are in a region where rents just keep getting more expensive, that should be a cue to look at buying. It may not even cost you more in the near term, and it is a much better use of your money in the long term.
  5. Just married. Getting married is likely to prompt a change in your living arrangements anyway, and since you are making a long-term commitment already, it can be a sensible time to consider buying a house. Plus, if you are now part of a household with two incomes instead of one, that makes buying a house even more affordable - not only is there the extra money, but having two sources of income instead of one makes a couple better able to weather any temporary financial setbacks.
  6. Planning a family. Having kids means you will need more space, and perhaps a move to a more suitable neighborhood as well. That will probably involve much steeper rents, so this would be a good time to look at buying instead. You could try a bigger apartment as an interim move, but consider whether you want the expense of having to move more than once - not to mention the hassle of going through that while trying to look after small children.

Naturally, economic conditions as well as life events do come into this decision, but most people don't spend all their time following the economy. So, let your life tell you when it's time to think about buying a house, and then take a hard look at the economics.

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