Most of us rent our living spaces at one time or another. Whether it’s a room in someone else’s house, an apartment, or even a single-family home, renting is very often the best option for Americans just starting out…and sometimes for those who’ve been there and done the buying thing and are ready to scale down. (More on that in another blog!)
Anyway, suppose you’re now feeling quite settled and are tired of paying rent and watching your monthly payment disappear with clearly no financial advantage to you. You want to start building equity and want to select a place that you can make “your own”. So, in your mind, it’s time to buy. After all, if you can afford rent, you can afford a mortgage payment that’s equal to it, right?
Not so fast! While your reasoning is somewhat sound and you’ve no doubt thought about this for a while, there are indeed other things to consider before you make that big leap from tenant to king or queen of your castle!
The chances are that if you’ve been renting, you’ve already had to come up with a security deposit and perhaps one month’s rent at the time of your lease signing. That was probably a big deal when you were first starting out as those costs can amount to a substantial amount of money.
However, it’s essential to remember that buying a home is going to involve plenty more upfront cash than just a month or two of mortgage payments. You’ll need a down-payment, which – depending on what kind of financing you’ll be getting – might mean a minimum of 10 percent (or more) of the asking price of the home. (With certain types of mortgages, you may get away with as little as about 3 percent down.)
But that’s not the only money that will come out of your pocket. There will be fees for things such as home inspections, an appraisal, title insurance, and loan origination fees, many of which will be figured into your “closing costs”, which usually amount to about 3 to 5 percent of the purchase price of your home. And there are always other incidentals.
So, let’s recap that. On a $200,000 home with a traditional 10 percent down mortgage, you’re looking at about $20,000-$30,000 out-of-pocket before you sign on the dotted line.
Preparing for Emergencies
When you’re a renter and the washer breaks, the AC stops working, or the basement floods, you just call your landlord, and they handle the problem, right?
Well, when you’re a homeowner, the only person you can turn to when there’s a problem is YOU! The joys of homeownership include taking care of such situations on your own, so you want to make sure that you have funds put aside for such issues and that you’re not strapped on a monthly basis. If your mortgage payment is going to suck up all your money, then it’s simply too high, and you should consider different financing or a lower-priced home.
And then there are those things that “happen” that aren’t associated with your home, like an accident or a hospitalization, or a job loss. Anything that interferes with your regular income could put your home in jeopardy if you’re suddenly unable to make your mortgage payments.
That’s why many financial advisers suggest you have about six months of living expenses saved before you apply for a mortgage and consider homeownership. This will buy you some peace of mind and will undoubtedly come in handy if the unthinkable occurs, and you find yourself suddenly unable to meet your expenses.
You’re the Handyman (or woman)
In addition to funding those extras, you must learn how to handle them, too. After all, you’re now your own maintenance person!
Do you know how to shut off the water if a pipe bursts? Can you fix a leaky toilet? How about unclogging the sink? What about that sticky front door? Do you have time to mow the lawn or shovel the snow? Do you WANT to mow the lawn or shovel the snow?
These are things you should think about before jumping into homeownership. Remember, unless you can afford to always bring in a handyman or other tradesperson every time a maintenance issue needs addressing, you’re going to have to get used to doing some things on your own.
You’re Going to Be Part of a Community!
When you’re a renter, chances are you may opt not to get to know your neighbors, especially since those neighbors are always changing. In places where renting is predominant, like in an apartment building, you might not socialize with anyone around you…and you may prefer it that way!
But when you purchase a house, it’s a good idea to spend at least some time getting to know your neighbors and putting a little effort into making your community a great place to live. We’re not saying you can’t be a homeowner AND a loner, but you’ll have a lot more fun if you have it in you to be a responsible and friendly neighbor.
Indeed, owning a home can be daunting…but also wonderful! If you’re considering a purchase in the near future but are still a little unsure as to whether you’re ready or not, take some time to speak with an experienced real estate agent about the market in your area and how you can make the transition from renter to homeowner as seamless as possible.