When should I buy my first home?

A home is one of the rare consumer goods that actually increases in value, so it is both consumption and investment. If you don’t look at your home as an investment,  it’s probably because you’re willing to spend more than its value. My rule of thumb is to never buy a home unless:

  • You plan to live there for at least five years, which is the point at which my definition of short-term ends,
  • You have saved 20% for the down payment (even if you plan on a doctor loan), and
  • You have paid off all of your debt with the possible exception of a reasonable amount of student loans.

The exception to my rule of thumb is when you are ready to buy a home (say, you just found out you’re expecting) and you don’t have the 20% downpayment needed to avoid PMI. In that case, a physician’s home loan will give you a somewhat higher rate of interest and closing costs, but no PMI.

Rules of thumb are only generalities. A personal financial plan may indicate that you are fine buying a home now, even though you have only 15% saved because, for example, you are about to inherit money, or you are going for PSLF and only three years away, or for some other mitigating factor. The important point is that you actually have a financial plan in place.

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