Are You Really Ready To Buy A House?

Homeownership is still part of the American dream, but make sure you're truly ready before jumping in.

Apr 20, 2014 at 11:44AM


Source: Flickr / Images of Money.

I generally advocate buying a home, but sometimes it's just not the most practical thing to do. There are some situations when it's simply not the best idea for where you are in your life; and some cases where you'll be better served financially by renting a house or apartment. So how do you know if you're ready? Here are a few things to think about before committing to the time-consuming house hunting process.


Photo: Kellie Jo Helget

How "stable" are you?
Is there a decent possibility of relocating within the next few years? Is your current job not as stable as you would like? Does your income vary from paycheck to paycheck? These are all good reasons to keep renting.

Buying a home should be a long-term commitment – at least five years or so. Don't plan on buying a house only to sell it in two or three years, as it's very hard to not lose money. Let's say you buy a house for $200,000. Even if the home rises in value, you'll have to overcome the $12,000 or more in commissions to a real estate agent, plus your closing costs, meaning you'll have to sell it at a nice "profit" just to break even.

Are you really ready to maintain a home?
A lot of people who have never owned a home don't really appreciate the sheer amount of upkeep involved. If you rent a house or apartment, chances are the landlord takes care of landscaping, painting the exterior, and other routine maintenance. And if something breaks, they probably come fix it.

Not so if you buy a house. Be prepared to commit a substantial amount of your time and money to maintaining your home. According to one report, a good rule of thumb is to expect maintenance costs to total 1% of the home's value each year. So, if your home is worth $200,000, plan on $2,000 in annual maintenance expenses, and it's probably a good idea to overestimate and set more aside to cover unforeseen expenses.

As far as the time commitment goes, it will vary depending on the type of property, age of the home, size of your yard, etc. But, if you're not ready to spend your Saturday afternoons doing yard work on a regular basis, maybe you're not quite ready for home ownership.

Sure you can buy a house with very little down, but should you?
Perhaps the most compelling reason to wait to buy a home is lack of cash. There are plenty of low down payment options available, but the extra costs may be to the point where you would be better off renting. Consider this example of the most common type of low down payment mortgage, the FHA loan, which requires 3.5% down.

On a traditional mortgage (20% down), you would pay about $811 in principal and interest for a $200,000 home on a 30-year mortgage at 4.5% interest. However, on an FHA loan with 3.5% down, principal and interest jumps to $978, and this doesn't include mortgage insurance, which is required with less than 20% down. Including mortgage insurance, your payment jumps to $1,195 per month, or almost 50% more than a traditional mortgage. Plus, FHA requires an up-front mortgage insurance payment of 1.75% of the total loan amount ($3,378 in this case).

There are some lenders who offer non-FHA loans with down payments as low as 5%, and while they still require mortgage insurance, the rates and upfront fees may be lower since its private mortgage insurance, not the FHA's. Still, when you add in taxes and insurance to the payment, a home could probably be rented for significantly less than the cost of ownership.

When to buy?
The best time to buy a home is when you can truly afford it, have the time to commit, and are going to be in the same place for the foreseeable future. Buying (and selling) a house can be a nerve-racking process, and it probably not something you want to do every few years anyway!

Use tax advantages to get into your dream home sooner
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information