4 Questions to Ask Yourself Before Buying Your First Home
Owning a home is a major long term investment and time commitment. Whether buying a home is a “great idea” depends on what stage of life you’re in, what you want to accomplish in the next 2 to 3 years of your life, and how much it’s going to cost you to accomplish those specific goals including paying off your other debt.
Here’s the common argument I hear when I ask clients why they want to buy their first time home instead of continuing to rent:
“I feel like I am just throwing away money and not owning anything at the end of the day.”
That argument is only true to the extent that you don’t own anything for paying into something. However, it is short sighted to assume that renting is always cheaper than owning a home. CNBC reported that homeowners pay 33% to 93% more for housing each month than renters.
The cost of home ownership is not as simple as comparing what you currently pay in rent to what your monthly mortgage would be.
Moreover, you will more than likely have to tap into your current cash reserves to pay for closing costs and upfront lender fees on top of the down payment necessary. These additional expenses throughout the home-buying process catch many first time home buyers of guard
Not saying that this is true for all people, but most of my clients in their 20s and early 30s are in the beginning stages of developing their careers and tend to move often from city to city. CNN reported that Millennials on average will change jobs at least four times by the time they are age 32, changing jobs at least once every two years.
If you are a first time home buyer, consider these long term scenarios and whether you are ready to face them should they arise.
1. Renting is best for those who are in the beginning stages of developing their careers. Perhaps you live in Atlanta and you get a wonderful job offer in another state. If you had to move within the next 2 to 5 years due to a personal matter such as advancing your career, are you ready to deal with the costs, planning, and logistics of selling your home or keeping your home to rent it out? It’s a much easier transition to pack your bags and sign off on a lease than having to deal with the logistics of selling your home or becoming a landlord.
2. If you are buying a home with the intention of leasing it in the future, are you fully aware of the responsibilities that come with being a landlord? Is your house in an area where there’s a demand for renting and will you be able to make a monthly profit? As a landlord, you are still responsible for the repairs and maintenance of the home as well as any expenses you may incur looking for a responsible tenant.
3. Home ownership is an investment. Have you done your due diligence of understanding the housing market? In other words, the value of your home will fluctuate throughout the years depending on how well the economy is performing. Your home is part of your net worth. Moreover, most people fail to look at home ownership as an investment in their overall portfolio. Make sure it’s in a location that sustains its value.
4. Besides having enough for your down payment, do you have enough money to meet the additional expenses that will arise during the home-buying process ? Be ready to pay upfront $3,000 or more on average for these additional costs.
The Bottom Line:
Buying a home can be an expensive process and is time consuming. Owning a home can cost you more in the short term if you don’t perform thorough due diligence and evaluate all the expenses. More importantly, you need to have an honest assessment of your financial planning and determine whether you will have enough cash flow to meet the demands of home ownership in the long-run.
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