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“When do I know I have enough saved to buy that New Jersey house I’ve always dreamed about?”

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Here’s this month’s New Jersey personal finance question, “I’m making $100k a year and still living with my parents. Not too many bills to pay, and student debt is paid off. When do I know I have enough saved to move out and buy that New Jersey house I’ve always dreamed about?”

First, consider the opportunity cost. Buying a house in New Jersey significantly increases your non-discretionary expenses. This is vastly different from living with your parents. You will have a mortgage, property taxes (which are high in NJ), possibly HOA fees, and a toilet to plumb. If the boiler breaks, you are on the hook for the repair cost. As a general rule of thumb, your total monthly housing costs should not exceed more than 28% of your monthly gross income.

Are you okay with the level of responsibility that comes with being a homeowner? You may decide that you would rather keep saving your money or spending it on the pursuit of other goals, such as furthering your education, paying down debt, saving toward retirement, etc. Does improving your lifestyle today outweigh the potential financial drawbacks over the long-term?

Next, consider the initial investment and whether the transaction itself is going to bleed you. The larger the down payment, the less interest paid on your mortgage. Ideally, you should be able to put down at least 20%. You’ll also have to pay closing costs, application fees, loan origination fees, attorney fees, transfer tax, and possibly others such as flood insurance in some areas. This can amount to tens of thousands of dollars, or more. If you haven’t saved up to pay for all these potential costs, the home purchase transaction itself becomes a significant financial risk.

Lastly, think about if you want to be grounded in one place. Buying a house tends to be more attractive than renting if you plan to live there for a considerable period of time. Are you ready to hunker down or could this lack of flexibility hold back your career and other life decisions?

Owning a home can help build your net worth if you pay down your mortgage and the asset’s value appreciates over time. However, it’s a serious commitment and one that should be made upon a stable and healthy framework. If you’d like to learn more, here are two blogs we wrote on this topic:

Should I buy a house in New Jersey suburbs or New York City?
A balanced perspective on whether you should rent or buy in NJ

If you have any questions, send me a message.


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