This question is asked of me quite frequently since I moved to Utah from New York. After all, don´t I write financial advice? Shouldn´t I be living in my own home? Why am I throwing money away on rent? Well, the bottom line is that it´s not always the best idea to buy a house. There are many factors that should be considered when it comes to deciding whether or not to purchase a home. And I happen to know that in my current situation, purchasing really isn´t an option.
How long will you be there?
This is an important question to ask yourself before you run out to buy a home. It takes time to build equity in your home. Most of your mortgage payments the first few years go by and large to paying interest. This means that you build equity, or "ownership," in your home quite slowly. The generally accepted rule of thumb is that you should plan on being in the home for at least four years (five to seven is better) in order to make it worth your while. I´ve been here a year. We´re only going to be here for a couple more years while my husband (finally) finishes his Ph.D. We´d never be able to build adequate equity to make the purchase worth our while.
What about other costs?
Maintaining a home can be costly, in terms of time and money. Right now, we really don´t have the time to fix up a home, and to keep it good, "sellable" condition. Additionally, we have to think about how much closing costs would be, as well as paying property taxes. When we figured up the monthly cost of owning a home in our particular market, we discovered that it costs more. In many cases, buying a home actually lowers your monthly housing payments. In our case, however, the opposite is true. We live in a college town saturated with students. Therefore, rent is cheap. We would have to pay $250 more dollars per month for house comparable to what we are in now. Instead, we are putting the savings from mortgage payments (and a little more) into a high-yield savings account. When we´re done here, we´ll have the ability to make a bigger down payment on a home wherever we decide to move.
Analyze your situation
Before you decide to buy, analyze your situation. Everyone´s circumstances are different, but you can get a good idea of whether buying at this point in your life really is a good idea. Figure out how long you are likely to stay in the house, and then figure out your monthly payments. Don´t forget that a house payment isn´t just the purchase price divided out over 30 years. You have to include interest (there are plenty of online calculators that can help you with this), closing costs, fees, and property taxes. You should also consider likely maintenance costs. And don´t forget to look at the local real estate market. Is it growing? Will your home appreciate in value at a good rate? What are the circumstances in your area? Is there a factor that makes rent cheaper?
Owning a home is the American Dream. However, you might not be quite there yet. But with careful planning, you can determine how you can best get there from where you are right now.