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HOME-BUYER’S GUIDE
Part 1: Is Home Buying Right for Me?

December 5, 2016

Purchasing a home is one of the most impactful decisions you will ever make in your lifetime. It is a huge investment that can result in years of happiness and fulfillment, but requires careful thought and consideration. Renting is an option that may be more attractive in certain situations; however, home buying often leads to more stability and satisfaction throughout a lifetime.

 

Open kitchen and dining room in Daybreak townhome

 

The Pros of Home Ownership

BUILDING EQUITY – Perhaps the largest advantage home buying holds over renting is the ability to build equity over time. The mortgage bill you pay each month is not money wasted. Excluding interest, every dollar that is paid toward your mortgage helps you increase your ownership percentage of the home and property. But you do not have to wait until 100% ownership to start seeing the financial advantages. For example, once reaching 20% equity, homeowners are eligible to refinance their loan and lower their monthly payments. Another way equity pays off is when homeowners resell. Given that the economy remains stable or grows, homeowners are often able to sell their property for more than originally purchased for. This added profit can go towards buying another home or saving for retirement.

IMPROVEMENT AND CREATIVITY – Homeowners do not have to answer to a landlord. This means they are granted much more creative freedom when decorating and styling the house. There is no need to have changes approved through the landlord or management property before painting the dining room or hanging pictures on the wall. This freedom also lends itself to improvements and remodeling where needed. The freedom to renovate certain areas is liberating for the creative homeowner, and such upgrades also increase the home’s overall value.

SENSE OF STABILITY – Purchasing a home gives owners a sense of belonging. Renting can often feel like a temporary solution. For those living in rental communities or apartment complexes, you are often surrounded by a more transient community, making it harder to make connections and feel like a valued member of the area. However, homeowners are more easily able to get involved with their neighborhood and host social events. They can make long term commitments like committee chair or community event planner. Home owning leads to a more entrenched feeling in the community.

FINANCIAL STABILITY – For those living in a highly competitive housing market, home buying locks homeowners into a financial contract. With a set loan, homeowners always know their monthly housing bills. Meanwhile, those that are renting usually sign one-year contracts, allowing landlords the opportunity to increase the rent once a year. Those unable to keep up with rising rent prices may be forced to move, another additional expense on their wallets.

 

The Drawbacks of Home Ownership

REAL ESTATE MARKET – Though homeowners may be locked into more financially stable payment rates, they are not completely immune to the economy’s fluctuations. Unfortunately, homeowners that purchase homes in areas where the real estate market may be declining may not make a profit when reselling their home. However, economies always rebound and those planning on living in one house for years may wait long enough to see the market recover before trying to sell. Those living in one house indefinitely rarely need worry about the resale value of their home.

STAYING WITHIN A BUDGET – When setting their budget for a home, it is important to build in wiggle room for additional unseen costs. Homeowners must be prepared to pay closing costs, any home renovation costs, insurance, HOA dues, and real estate taxes. Yet, with careful planning, a patient attitude, and a smart approach to the real estate market, home buyers can find a great house that fits well within their budget.

MAINTENANCE  – One of the biggest benefits of renting is that maintenance often falls under the landlord’s responsibility. Maintenance problems can occur at any time and the costs to fix them can add up quickly. Though you may be able to fix the problem on your own, there are still supply costs involved and the problem must be fixed on your personal time. Learning basic repair and maintenance is a smart way to save yourself time and money down the road. Start by learning where the breaker switches are, how to clean out gutters, and how to unclog the shower.

 

Living room of Daybreak model home with view

 

What To Do Before Purchasing

FOCUS ON YOUR CREDIT SCORE – Your credit score may not be something you wish to think about voluntarily. However, it is crucial to know your credit score before starting your home buying journey. The higher your credit score, the lower your monthly payment. In fact, a particularly low credit score may bar you from securing a loan at all. Take every chance to increase your credit score when preparing to buy a house.

CONSIDER YOUR FUTURE – Consider the most likely outcomes in your near and far future before settling on a house. Are you planning on having kids soon? Are your kids grown and ready to leave the house? Be prepared for the most likely outcomes when making this decision.

REMEMBER THE 28/36 RULE – Before you even begin to look at houses, it is essential to establish a budget. A good rule of thumb is that the total monthly house payments, including mortgage and insurance, should not exceed more than 28% of your gross monthly income. All total debt payments (including the house) should not exceed more than 36% of your pretax monthly income. Using this as a guideline will allow room for unexpected expenses without causing too much financial strain.

GET PRE-APPROVED FOR A MORTGAGE – Beyond just figuring out a general budget, potential home buyers should be in the process of, or already completed, the mortgage pre-approval process. The process can seem complex for a first time homebuyer. For those seriously considering purchasing a new home, the sooner they start applying, the better.

For those seeking a deeper financial understanding before deciding whether to rent or purchase, the New York Times has developed an interactive web tool to help potential buyers understand which option may be better for them.   

 

To read Part 2 of The Home-Buyer’s Guide, click here.

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