“Don’t waste your money on rent.”
“You are throwing away your money by renting.”
“Your home is a great investment.”
How many times have we heard these phrases? Too many times?
The truth is that many people rush in to buying a home without deciding if the decision is right for them. They listen to the guidance that their friends and family are providing instead of seeing if purchasing a home fits into their lifestyle. It used to be that you bought a home (or lived in a home that had been in the family for years) and you stayed there until you died. That is not the case with our modern-day life.
Buying a home can be a great blessing but it also brings on a lot of responsibility. You need to take into consideration all the costs required to own a home. This includes taxes, upkeep of the home and repairs and maintenance. If something breaks down, you are the one who is responsible for paying to have it repaired. You also have to consider the time and resources it takes to upkeep a home.
In addition, the idea that your home is a great investment is a little misleading. The problem with considering your home as an investment is that you don’t get to see the return on your home until you sell it. You still have to live somewhere. If you sell your home and get a great return, chances are (although not always) that you will be using those returns and your initial investment as down payment for the next home. The returns from your home are not as accessible as from other investments.
Here are some tips to determine if you are ready to purchase a home:
You are ready to stay in one place at least five years. From personal experience with my family buying and selling homes, it takes a while for your home to appreciate in value to make it worth purchasing. Holding on to your home for at least five years will allow your home’s value to rise to make sure you re-coup your initial investment as well as cover the cost of selling the home. If you know that your life is more transient and there is a possibility of moving in the near future, stick with renting.
You have a healthy down payment – at least 10% of the purchase price. Take it from someone who did a 0% down home purchase. It was one of the worst financial mistakes I ever made. When I needed to sell the home when I lost my job, I ended up in foreclosure because I couldn’t sell the house without owing an additional $40,000 out of pocket that I didn’t have. Don’t put yourself in a bad position from the beginning of your home purchase.
You have additional funds in emergency savings. It must be Murphy’s Law of home buying but inevitably something ends up breaking or needing repair once the purchase is complete. Even when a home inspection has been done. A friend of mine bought a newly remodeled home that ended up being a complete money pit. She has put thousands of dollars to repair shoddy construction work. Make sure you have an additional money cushion for the unexpected repairs that will pop up.
You are ready to take on the additional responsibilities of owning a home. These additional responsibilities will require either time or money or both. You will no longer have the option of calling the landlord when you have a leaky faucet. Instead you will need to fix it yourself – possibly having to slog through YouTube videos if you don’t know what you are doing and try to fix it yourself – or call a repair person who you will have to pay. Mowing the lawn. Shoveling the snow on the driveway in colder climates. Putting up hurricane shutters in hurricane country. Ask any homeowner what they have had to do for their home in the last year. I’m sure it’s more than a few items!
What other criteria do you have for owning a home?