Homeownership is the American Dream, right? Owning a place to call home, paint the walls purple if you like, that’s what everyone wants. Isn’t it? The reality is there are pros and cons to buying a house. Understanding them can help you make the best decision for your goals.
Pros for Buying
There are three main reasons to buy a home.
Financial Advantages – A home is an asset that should appreciate over time, providing wealth-building opportunities.
Pride of Ownership – As a homeowner, you control the environment in which you live. If you want those purple walls or granite countertop, you can do it.
Roots – Regardless of whether you have children, there is a natural desire to be part of a community: to have a local coﬀee shop, dry cleaners, etc.
Cons for Buying
As with all things, there are considerations which mean this isn’t the right time to buy a home.
Increased Monthly Costs – While not always the case, in most instances, your monthly mortgage will be larger than comparable rent.
Freedom – A renter can move from one city or state to another quickly, allowing you to move when you need or want to.
Upkeep – You are responsible for the repairs and maintenance of the property. Unexpected problems can become quite expensive if you are unprepared.
There are some excellent reasons to buy a home; before you decide that it’s time to buy, give some thought to your lifestyle and goals if they are in line with the advantages of homeownership, then time to go house hunting.
When our parents were buying their first home, there was one way to finance the purchase. You would walk down to the corner bank and asked for a 30 year mortgage. Today the average home owner moves every 5-7 years. Depending on your needs there are a number of mortgage options you might consider, each with its own advantages and disadvantages, spending some time to understand the options is the best way to choose the right loan for your needs.
While loan programs and terms vary, the most common are:
Conventional – A conventional loan is normally still designed to be paid off in 30 years with equal monthly payments during the term of the loan. There are currently conventional loans that require as little as 5% down, although 20-25% is still commonplace.
FHA – An FHA loan is guaranteed by the Federal Housing Administration and is attractive for a number of reasons, especially for the first time home buyer. The down payment can be as little as 3.5% and that can be a gift.
VA – VA (Veteran Affairs) is a loan program offered for Veterans and their spouses. While the terms can vary from 0-5% down payment, this loan may allow the borrower to finance as much as 100% of the home’s value in the loan.
Your lender will also have more specialized options for you, such as adjustable rate loans and 10 or 15 year loans. They can also explain the additional costs that could be associated with each type of loan program.
Part of purchasing a home is to find the right financing. Your lender will talk you through your options. If you have not already spoken to a lender, or if you need a referral, your real estate agent is a great resource for you.
Do you feel that you’re ready to buy your first home? Tired of paying your landlord’s mortgage? Do you want to put down roots and start building equity for yourself? There are many reasons why people decide it could be time to buy a home. The costs associated with buying and owning a home can feel overwhelming but fortunately there are simple steps you can take to see if you can afford to buy a home.
Talk With a Lender
The best step you can take to start your home buying planning is to find a good lender and meet to talk about your financial situation. Your lender will look at your income, savings and credit and then talk about your needs. They will help you explore the loan options available to you and the down payment, saving reserves and closing costs requirements.
Can You Afford the Mortgage?
Typically rent payments are less than a mortgage payment; this can feel unsettling until you understand the qualifying formula. Because mortgage interest is deductible (speak with your tax professional for exact details), most lenders look for the buyers to spend approximately 30% of their GROSS income on the loan payment and no more than 36% on all other debt.
Ex. If your monthly gross income is $5000/month, you can spend $1500/month on your mortgage payment.
If you think you’re ready to buy a home, find a good lender and start talking about your unique situation. Learn the costs and benefits to help you determine if you can afford to buy a new home.