If you are currently a renter and are considering buying a home in the next few months or years, you should think through whether or not that move makes sense for you. Don't purchase a home without understanding the life and financial implications of owning real estate because while being a homeowner can be a very good wealth-building decision, it can also be a cash-draining one if not carefully planned.
Am I virtually positive that I will own the property for at least five years?
The problem with short-term ownership is that real estate has high transaction costs when you buy and when you sell property. Due to those high transaction costs, the value will have to increase significantly over the short term for you to increase your wealth from ownership. Otherwise, you will end up losing wealth when you sell it. Your best bet is to rent someone else’s property until you are sure you will own the place you buy for a long time.
Do I love the property I plan to buy?
When you buy property, you are making the biggest commitment you will probably ever make in life (other than getting married or having a child!). Once own a home, it isn’t easy to sell it or remove the liability you take on being an owner, so you don’t want to buy a home unless you absolutely love it and can see yourself really enjoying that particular property. Don’t buy a property just to be an owner. Buy a property you love! If you don’t love it, stay renting until you find "the one."
Can I afford the payments, taxes, insurance, and upkeep?
Just because a mortgage lender says you can borrow a certain amount of money, that doesn’t necessarily mean you can really afford to own the house. As a renter, you have a fixed monthly payment that might go up a little each year. As an owner, your monthly costs will probably be higher regardless, but not always. The monthly cost can also vary depending on all those unanticipated expenses that come along with owning a home. For example, when the refrigerator breaks, it’s your responsibility to pay to fix it because there is no longer a landlord. If property taxes go up, you own the property, so you'll have to pay the higher taxes. Renters can always move to another place too, but once you sign on the dotted line for your mortgage, you are committed to the property. If it isn’t affordable, stay a renter until your income can support the property that makes the most sense for you. Here are some helpful tips from CNN on buying a home you can afford.
Those three questions are some of the most important things you should consider when thinking about buying a home. Let me restate it this way: if you buy a home and own it for a long time, and you love the home you are buying, and the payments are affordable, you will be very happy at that address. It won’t drain your bank account and therefore you can save money in separate retirement accounts, which, along with the equity you are building in your home, will provide a nice retirement. Alternatively, if you plan to buy and sell property, or you don’t really like what you bought, and you are financially stretched, you won’t be a happy real estate owner and it will drain your wealth and happiness.
Think through those items and when all your dashes are aligned and it makes sense to buy, that is when you should start your process to become a homeowner. Until then, keep being one of those people that is still considering buying a home but waiting for the right time to commit!
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