How to Recession-Proof Your Home Purchase
Recently, the ever increasingly frightening word of “recession” has been uttered from the mouths of some financial experts. Some imply that a recession is impending for the country and others think it is just hype. However, we often don’t know we are in a recession until it has already started. Despite home prices only retreating in two recessions since 1980, American homeowners still have a big reaction to the word recession after what we went through just a mere decade ago. Here are some ways to safeguard yourself against a recession affecting your wallet and lifestyle.
Don’t Buy Beyond Your Means
The biggest way to recession-proof your home purchase, and ultimately your life, is to live within your means. Buy a home that you can modestly afford without having to make tremendous sacrifice. A conservative approach would be to avoid having mortgage payment that exceeds 25% of your take-home pay. A lower mortgage payment means more money that can be tucked into savings on a monthly basis. It also means less money to part ways with if there is a change in employment.
Keep Your Savings Account Fully Funded
Another way to provide peace of mind is to have enough money in savings. Many financial advisors recommend at least six-months worth of living expenses. This will give you a cushion of time to make ends meet while finding new employment in the event of a layoff. Keep this money in an account that you have easy access to with no withdrawal penalty.
Avoid Homes with Expensive Repairs Needed
Be very choosy about what type of home repair projects you decide to take on with a home purchase. A home that needs a new furnace or new roof will drain thousands from your bank account but will not increase your home’s value, only maintain it. This may make you cash poor and you won’t have a higher selling price to show for it.
Consider Length of Time in the Home
Before you make any big financial decision whether it is buying a house or refinancing, consider the length of time you plan to own the property. Selling a home within the first 5 years of owning can be a risky move. The costs of selling alone may keep you from turning a profit. Furthermore, if you are in an area where home values are surging, resist the urge to refinance the house and take out cash against the increased equity. This is where a lot of homeowners find themselves in trouble when home values drop.
The good news is that we are unlikely to feel a recession in our economy as severe as the 2007-2008 crash. Historically speaking, financial crises of that magnitude do not occur often. It is still wise to take the steps to protect your real estate investment and financial well-being by following the advice listed above.