3 Factors to Consider If You Want to Buy Your Dream House

Now more than ever, people are taking a good hard look at their homes and re-evaluating where they live. And that’s little wonder, after we’ve all spent the first half of 2020 in quarantine due to the global pandemic.

If you’ve been stuck in the house due to the closure and shutdown of businesses and public spaces, you probably notice things about your home that you simply didn’t before… and it could have you considering renovations or even a complete move to something new.

We’ve spoken to many friends and clients who admit lockdown has changed how they feel about their home, and inspired them to start the search for something that feels more aligned with their dream or forever house.

Whether the COVID-19 pandemic is the catalyst for your own desire to buy your dream house, or if updating your current property to make it feasible to keep as your forever home was always part of the plan, there are 3 factors to consider before making any major changes.

1. What’s Motivating You to Make a Move or a Big Change?

The very first factor to consider if you want to buy your dream house (or renovate your current property to create your forever home) is why you want to make this big change.

Whether you’re looking to move to a new neighborhood or just a new property in the area, or if you want to take on a major construction project, you need to understand what’s motivating this feeling that you need to change things.

Some reasons for “why” can be great indicators that it is time to make an adjustment, while others might serve more as red flags for why more thought needs to go into this decision.

For example, do you feel you need to move because a neighbor, coworker, family member, or friend recently upgraded their own home to something bigger and better?

Keeping up with the Joneses is rarely a good reason to make major financial choices in your own life, and deciding it’s time to renovate or move simply because someone else made a change might not align with your long-term plan, goals, or even your priorities. 

You also need to make sure a short-term situation isn’t pressing you to make long-term decisions. The global pandemic, forced economic shutdowns, and a total upheaval of what we knew as “normal” life may make you feel like you need to change something to deal with the current situation… but it may still be too soon to know what the lasting impact of the COVID-19 outbreak will be.

If you had no desire to move or remodel before you were unexpectedly stuck at home for a few months, you may still want to hold off on making massive changes until we have more clarity on what the long-term aftereffects of the pandemic will be.

Of course, staying at home more could also lead to insights about what you need or want from your house that it doesn’t offer you right now. Perhaps you truly do need more space for a growing family or a changing set of values if you foresee a future where staying at home rather than going out becomes your new normal.

There are no wrong answers here, and the point is not to have the “right” why. It’s just to understand what your particular “why” is, so you can ensure you’re making good decisions for you (and not just rash choices influenced by external forces).

2. How Does This Decision Impact Your Life Today and Tomorrow?

The next factor to look at is how a decision to buy your dream house now impacts your financial life right away… and years or even decades into the future.

Before you make a commitment to buy your dream house or to undertake major home improvement work to your existing house, try to consider what your needs, wants, priorities, and goals may be in 5 years. What about 10, or even 20?

If the idea is for your dream house to be your forever house, you need to make decisions not just for the person you are today but also for the person you may be or are likely to be in the distant future -- and that’s not always easy to do!

You’ll want to consider if a house and its features will align with where you’ll be in a few years and in 10 or more. Will you still have kids in the house or will you be empty-nesters in a decade? Will you have more space or property than you can (or want to) reasonably manage in a few years, even if it seems like a good way to spend your free time today?

Again, there may not be objectively correct answers here. The point is to use your imagination, and consider these and other questions about what you want your future to look like.

What’s important to think through is how a dream house or forever home may fit into the equation… and if it doesn’t, a plan for what you’ll do when you need to make another transition in the future should be part of your financial planning work around this decision. 

3. What Do the Numbers Tell You?

If you consider the first two factors listed above and feel strongly that it’s time to buy your dream house or turn your current property into your forever home via renovations, then you have to get grounded in the numbers.

Even if the dream house idea can work on an emotional level and meet your practical needs, we can’t ignore the financial aspects involved with making such a large purchase. This is even more important if the house truly will be a forever home, because that means the intention may not be to sell the property to earn a profit so you can’t count it as an investment. 

Some questions to ask yourself revolve around monthly cash flow: would a new (and potentially higher) mortgage fit in your budget? How much more would you need to spend, and do you feel comfortable doing that considering the broader economic uncertainty in the world today? How secure does your job feel, and does it make sense to make a big change while certain industries are struggling right now?

You also need to look at how financially prepared you are for the transaction itself, especially if you weren’t planning on trying to buy your dream house just 6 months ago. Do you have a sufficient down payment saved? Can you buy a home or finance a renovation without dipping into funds earmarked for other purposes?

If you’re looking to sell your current house, you can also consider the equity you have there. Will that help you get into a forever home?

At the very least, now is a good time to take advantage of unbelievably low interest rates. Mortgage rates have dipped below 3 percent for the first time ever since these numbers have been tracked, so that could help make the argument for buying -- or potentially refinancing your current mortgage instead.

There are a lot of moving parts involved with such a big decision, and many emotions that could make it harder to think through the practical aspects of the choice to buy your dream house right now. This is where your financial planner can help you evaluate every angle (including how this fits into the long-term plan) before you take action.

These 3 factors are essential to think through as you do your planning, but there are lots of nuances to your specific situation that may need to be considered, as well. Make sure you have a comprehensive plan in place that accounts for all those details so you can fully understand the right moves to make for you and your family.

Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

Andrew Comstock, CFA