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Get married, buy a house, and have children has been the long-standing definition of the “American Dream,” at least that’s what mom and dad always told us. I was always taught, owning a home is important milestone to adulthood, you build equity, help your credit, all while making a smart investment. However the “American Dream” isn’t what it used to be, with housing costs rising many individuals are getting squeezed out of the real estate market, and are being forced to rent instead. Feeling defeated already? No need, there are plenty of instances when renting is a smarter financial option.
With housing prices skyrocketing in certain cities such as San Francisco, Los Angles, or New York the housing market is becoming more and more competitive. Bidding wars are all too popular, and all cash offers blow other “great: offers out of the water. If you are positioning yourself to pay much more than you can comfortably afford, you may find yourself in hot water once all of those bills add up. In addition, urban real estate markets tend to be more volatile. If you purchase at the height of the market and then turn around and sell 10 years later you may lose money. Bottom line, if you find yourself entertaining spending much more than you can afford, hold off.
Many individuals compare their possible mortgage to their monthly rental amount and think they can afford to own. This is a huge mistake, when purchasing a home there are several additional costs that you need to include when deciding if you can afford the cost of owning a home. Including the principal interest, property taxes, property insurance, homeowners association fees, and maintenance. Often times maintenance cost is sorely underestimated. Even items such as lawnmowers, shovels, and new appliances can add up quickly. Make sure your budget can withstand all of these extra costs.
As Americans, our home has always been considered an investment, something to sell off and liquidate during retirement. Unfortunately this is no longer the case, houses can now go down as easily as they go up. No longer can you rely on your home as an investment. Make sure you consider the economic forecast of the city you are planning to buy in. How much would your home be worth if your city is bankrupt? Additionally experts warn that if you are planning on being in a house less than five years, turning a profit is highly unlikely.
People tend to only think of the financial obligation when deciding on whether or not to buy a home. Which they should because it’s a HUGE financial decision. However another factor to consider when buying a home is stress. If you have recently gone through other major transitions, such as getting married, having a child, or switching careers. It may be better to rent while your life is in flux. High stress may lead financial difficulty which can result in missed mortgage payments, which can ultimately affect your credit score.
Purchasing a home is a huge decision, considering all of the financial factors is a vital part of the process. If purchasing a home is smart option for you, checkout your mortgage options at Lending Tree where you can compare 5 different lender options at once.