With housing prices still low across much of the country, it could be the perfect time for life-long renters to finally buy their first homes. But making the transition from renting to owning is a big change, and not everyone is ready for it.
So are you prepared to make the leap to home ownership? Here are some tips that will help you decide.
When Will You Break Even
It’s an almost unquestioned rule of real estate: Owning a home is one of the best investments you can make. Freed from the cost of monthly rent, you can start building equity in your own property. But don’t expect that investment to start paying off right away. With a downpayment, property taxes, insurance and your monthly mortgage payment, expect the first few years to put a bite on your finances.
So when does home ownership start to pay off? There are a number of factors at play here, but on average, you’re likely going to break even around year three. In markets with high housing prices, however, the break-even point can be pushed back to a decade or more. There’s some tricky math involving home values, interest rates, income tax deductions and other variables; but if you’d like to chart your own timeline for homeownership, check out this handy calculator to figure out if it makes sense to purchase a home in your area.
...be aware that life after homeownership can be very different from renting.
Learning to Live With Less
With an investment that could pay for itself in three years, owning a home can seem like a no brainer. However, between the property taxes and monthly mortgage payment, the amount you spend on housing each month can rise dramatically, and it may cause a major lifestyle shift for new homeowners. Even with tax benefits that allow you to write off mortgage interest costs, the first few years are going to be lean -- a change that many new homeowners aren’t prepared for.
Before you make the leap, there are a few questions you should ask yourself. Are you planning on staying put for several years? Are you prepared to cut back on luxuries like vacations and eating out? Are you willing to take on the risk that housing values can decrease further? While these factors shouldn’t deter you from owning a home, you should be aware that life after homeownership can be very different from renting.
Taking Care of the House
Making your monthly mortgage payment is only one part of the equation when it comes to owning your own place. Without a landlord to handle repairs, it’s now up to you to tackle the day-to-day maintenance issues that are sure to crop up. As a renter, you can solve most problems with a phone call, but as a homeowner, be prepared to give up a Saturday in order to clean the gutters, or to dip into your savings to hire a plumber.
Of course, this comes with certain advantages, too. Want to redecorate and renovate? No need to get a landlord’s approval. After all, the freedom that owning your own place brings is the best pay-off of all.