I frequently hear people say "I can’t wait to buy a house so I can save money” or “I can’t wait to own my own home because I’m throwing away money paying rent”.
While it’s a great idea to own your own home, you have to make sure it makes sense for your personal life and financial situation – the last thing you want to do is be stuck with a mortgage you can’t afford or have a change of heart after you’ve purchased the home. Below are 3 questions to ask yourself before you take the plunge:
What is the estimated monthly cost of owning your home vs. what you currently pay in rent?
Renting a home usually come with fixed costs so you typically have an idea of what your utilities are each month and if there are any unexpected repairs then you just call your landlord. Simple. Well when you become a home owner, in addition to your mortgage and utilities, you are responsible for all home maintenance (think grass cutting, landscaping, snow removal etc) as well as any repairs that need to happen (and repairs do come up - ask any home owner you know and they'll tell you). So you need to build in a buffer to your monthly budget to expand your emergency fund to include needs for your home. Can you do this?
Can you afford the down payment?
Depending on what kind of loans you qualify for, you will be required to make a downpayment of around 5% to 20%. In addition you may be liable for some closing costs AND there is also the cost of moving. These are all costs you need to take into consideration before you begin house hunting – can you afford it? And if you can’t right now, how long will it take for you to save the amounts you need?
How long do you intend to live in your home and what if you had to stay longer?
It’s important that you have an idea how long you intend to stay in a home because aside from wanting a place to call their own, one of the main reasons people buy homes is for financial purposes so they can build equity. However, equity takes time to build and after only a couple of years, you may not have built enough or any equity in your home. So if you move too soon after you buy, you could end up losing money after you factor in your initial purchase expenses and then your selling and moving costs.
Homeownership is great and is definitely something to consider including in your wealth portfolio but remember, you need to plan accordingly and be ready to stick with it for the long term in order to realize the gains of homeownership.
Bola Onada Sokunbi