Homeownership is still a big part of the American dream, and there are several good reasons for this. For one thing, when you own a home, you can customize it as you see fit, making it truly "yours." And you won't have to deal with rent increases or lease renewals, as you would with an apartment.
However, owning a home is not for everyone. There are a few things you should think about before buying a house to decide whether or not it's the right move for you and your family.
How long will you stay in one place?
One of the biggest considerations when you're deciding whether or not to buy a home is how long you plan to remain in the same place. If your job is somewhat unstable, or you could be transferred at any time, this could present a problem down the road.
For starters, moving is much more inconvenient when you own your home. People usually have to list their home for sale and hope they get an acceptable offer before moving into another house.
However, the bigger concern is that moving too quickly after you buy a house can actually cost you a lot of money. For example, let's say you buy a home for $200,000 and your closing costs are about $5,000, for a total cost of $205,000 to acquire the home.
Well, if you decide to sell the home, you generally have to pay 6% of the sales price in real estate commissions (3% each to the seller's and buyer's agents), plus the seller's share of the closing costs. So, even if you sell the house for $15,000 more than you paid for it ($215,000), when subtracting 6% in commissions and another $2,000 or so for your closing costs, you'll end up receiving just over $200,000 for the sale of the home. Even though your house went up in value, you can still lose money.
In other words, you'll need your house to significantly appreciate in order to simply break even. If you sell too quickly, you could lose money, so make sure you plan to stick around for at least a few years before you buy.
Consider the time and financial commitments involved
If you rent an apartment or a house, you may not fully understand how much work is involved in homeownership. I know I certainly didn't when I bought my first home.
Generally, when you rent, the following things are taken care of for you:
- Pest control
- Exterior maintenance
So be prepared either to do these things yourself or to pay someone else to do them for you.
Plus, as an owner, you'll be responsible for dealing with any repairs. In an apartment, when your toilet breaks, you can simply call the maintenance man. In your own home, you'll have to find a plumber, and you'll be responsible for paying the bill.
Some repairs can be rather costly, such as a leaky roof or a broken-down HVAC system, so make sure you're prepared for the potential burden.
What kind of down payment do you have?
Unless you have a substantial amount of money to put down on a house, you might be better off renting until you do. You can obtain a mortgage with as low as 3% down, but that doesn't mean it's the best idea for you.
Let's say you're in the market for a home that costs $120,000. Now, rent prices vary by location, but let's say you could rent a similar home for $1,000 per month.
If you obtain a 30-year mortgage at 4% interest and put 20% down, you'll have a monthly payment of $458. Assuming another $150 per month for taxes and insurance, that gives us a total of $608. So you could buy this house and pay significantly less per month than you would in rent. Even though you'll have to put some money into maintaining the property, buying could still be a much more inexpensive way to go.
However, if you only put 3% down, you would have a monthly payment of $706, including taxes. And, since your down payment was less than 20%, you'll have to pay mortgage insurance, which should run you around 1% of the loan balance per year, or an extra $100 or so per month. That brings your monthly payment to more than $800, making it look much less appealing to buy instead of rent.
Of course, all markets are different, so you should thoroughly research your local market to compare the cost of ownership with the cost of renting.
So, should you buy a house?
This isn't a complete list of the potential reasons you might not want to buy a house, and I'm not trying to talk you out of homeownership. I just want you to know exactly what you're getting into. Here are some other things to consider:
- If your credit score is on the low end, it could be tough to get an affordable mortgage.
- Are you comfortable with borrowing large sums of money?
- There is always the possibility of another housing crash, like we saw in 2008.
- Your mortgage payment will stay the same, but taxes and insurance can fluctuate quite a bit.
Basically, if the good things about owning a home outweigh any of the potential reasons not to buy, buying a home could be a great idea for you. However, if any of the potential problems listed here give you serious concerns, you should think long and hard about whether or not you might be better off renting.