Lots of us have had to make a big decision in our lives. Many of us have had to make this decision a few times. Should we rent or buy a home? It may seem like the answer should be obvous, but it really is not. If you are thinking about your options, consider some of the real costs of home ownership.
You will probably need a large down payment. Most of those 0 money down schemes are gone. These days, a twenty percent down payment is back in fashion. Do you have this money? And after you put down this large amount, will you have any savings left? I think we have all learned that it does not do to be house poor in this day and age.
Think about the length of time you plan to live in the house you want to buy. Home owners, who stay put for years and decades, tend to be more satisfied with their purchases. If there is some chance you will have a job change or transfer in the next few years, you should weight that in your decision. It is so much easier to get out of a lease than a home purchase! It should be obvoius that you will not be able to get any guarantees that your home will sell for a good price when you need it to.
Lots of ads promote the advantages of purchasing your own home by comparing rent vs. mortgage payments. I think these really attract people, but those people are a little naive. Even if loan payments are $100 cheaper than rent, that will not cover insurance, property taxes, upkeep, and repairs. You have to realize how many bills that home owners have to pay before you know if this is a good time for you to buy.
Beyond mortgage and taxes, you will have other expenses. When your roof leaks or your dishwasher fails you will not have a landlord to call. Instead you must call a repair company. Do you have cash set aside for emergency repairs?
Some neighborhood associations also charge large fees. Make sure you understand how much they charge. In some places, this is very modest, but in others it is quite large. These fees pay for upkeep of common areas, swimming pools, etc. They must be paid every year in most places.
You will also need to purchase a policy to protect your home. Costs vary, but expect to pay anything from several hundred to a few thousand dollars a year. You could argue that you had renters insurance when you rented, but this is usually much cheaper. Homeowners insurance covers your building, property, contents, etc. Renters insurance only covers property.
Now many realtors will cite the tax benefits of property taxes and mortgage interest. But you can only take advantage of this if yours are higher than the standard deduction that everybody gets to take.
Do not misunderstand me. You will enjoy many things about buying your own home. I just want buyers to understand the real costs associated with this very large purchase. Before you buy a home, please take the time to understand how it will affect your budget for other things you need and enjoy.
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