The path toward homeownership can be both exciting and overwhelming. With the changing real estate market, new homeownership trends and the responsibilities that come with owning a home, it’s essential to stay informed and prepared.
As you make the transition from renter to owner, it’s normal to have some doubts. Maybe you’re worried that it’s the wrong time to buy, or maybe you’re worried you’ll simply make the wrong decisions. Here are some things you probably want to mull over and keep in the back of your mind as you start the process:
1. Owning May Be Cheaper Than Renting
It’s no secret that rental prices have skyrocketed in major cities across the nation, with decent living space coming at a premium. Unfortunately, even if you score a beautiful place at a rent you can afford, you’re ultimately still just paying for the use of someone else’s property instead of investing in your own.
The longer you stay in your home, the more you’ll save through the gradual build-up in equity. If rental prices continue to skyrocket, your fixed-rate mortgage can definitely be cheaper. Plus, all the interest you pay on a mortgage is tax deductible, so that also lowers your monthly costs in the end.
2. Your Lifestyle May Be Better Suited for Buying
Lifestyle factors play a crucial role in determining whether it is wiser to buy or rent a home. Some reasons why someone’s lifestyle may make it advisable to buy instead of rent include:
- Family goals: If you have a growing family (or want to grow the one you have), you may want the security and relative freedom that a home provides so that your kids can make a ruckus without upsetting the neighbors and play in the yard.
- Long-term plans: If you have a stable job, kids in a good school and plan on staying in the same area for several years or more, buying a home may be the better option. It allows you to settle into a community and establish roots, which can be difficult to do in a rental.
- Control over your living environment: When you rent, you can’t even paint the walls without permission – and other tenants in the building may make you uncomfortable or be loud. When you own, you have more control over your own environment, and that can be a precious commodity for many people.
3. You Do Need to Be Ready for Unexpected Costs
Homeownership can come with a few drawbacks, particularly when it comes to upkeep and unexpected repairs, so it’s best to go into the process with that knowledge.
When you rent, you can call the landlord in the middle of the night over a busted pipe and let the landlord deal with the repairmen and the bill. When you are the homeowner, everything is on you. Being unprepared for these financial challenges can put a significant strain on your finances – and your emotional state.
Typically, regular maintenance costs are something that homebuyers expect and can plan ahead to handle, but you need to have plans to put money aside for things like:
- Unexpected repairs: You can’t plan on something like a busted sewer line or a broken window, and your homeowners’ insurance may not cover the bills. Even if it does, you’ll have to come up with your deductible.
- Property tax increases: Property taxes are a significant expense and can increase over time – sometimes rather suddenly. That can increase your monthly mortgage payment, so make sure you are comfortable with your payment and have some room for an increase when you buy.
- Homeowner’s insurance: Homeowner’s insurance is mandatory for homeowners who have a mortgage and can add an additional monthly expense to your budget. It’s important to shop around for the best coverage and price.
4. It’s Unlikely That You’ll Get Everything You Want
Every would-be homeowner has a list of things they’d like to see in their ideal home, but finding the perfect home is often an unrealistic expectation, and it’s important to be prepared to make compromises.
For example, you may have your heart set on a specific neighborhood, but you may need to consider a different area if the homes in that area are out of your budget. Or, you may be looking for a home with a large backyard, but you may have to compromise on that if you want a home with more bedrooms or a more updated kitchen.
This does not mean, however, that you should settle for a home that doesn’t have what you need. It just means prioritizing your “must-haves” and “would-likes” in such a way that you remain open to the reality of what you can afford and what is available in the current housing market. You may find that by compromising on certain aspects of your dream home, you can find a home that meets your most important needs and still makes you happy.
Also, remember this: Your home is not a finished product. You can make changes and improvements over time to make it more to your liking.
5. The Financial Commitment Can Be Tough
Buying a home has a lot of “hidden” costs that first-time buyers don’t know about.
While you may have squirreled away the 5%-7% you need (on average) for a downpayment, you may not have considered the additional closing costs. Nor may you have considered the fact that putting down anything less than 20% forces you to pay private mortgage insurance (PMI) to protect the lender in case you default.
You also need to take a good look at your credit score and your debt-to-income ratios. Making sure your credit is healthy (700 or above) can help you score a better interest rate and a lower monthly payment. Making sure your debt-to-income ratio is low (below 36%) can also encourage lenders to take a chance on you or offer you a better rate – and avoid a painful rejection. This means making sure your credit cards are paid down or off and you keep nonessential bills to a minimum.
The journey to homeownership is a significant milestone that requires careful planning and consideration. As a first-time homeowner, it’s essential to understand the current market trends, your finances and the responsibilities that come with owning a home. This way, you can make informed decisions and find the perfect home that fits your needs and budget.
