A house may seem like the best investment to many, but it doesn’t always turn out that way in the long run. The size of your house, your personal financial situation, and your location all play important roles in deciding whether or not you should buy that dream home you’ve been eyeing. Here are some of the biggest factors to consider when deciding whether or not buying a house is the right choice for you financially.
Buying vs. Renting a Home
Before you go house-hunting, you should know whether buying or renting makes more sense for your situation. It’s important to consider things like your personal finances, life stage and how long you expect to stay in an area. It’s also essential to factor in major events that can affect your housing plans, such as relocating for work.
Homeownership can put you at risk for financial problems
The purpose of owning a home is to provide you with shelter, but many homeowners mistakenly believe that it is an investment. Owners have an emotional attachment to their homes which may cloud their financial judgment. Owning a home can place you at risk for financial problems in several ways
One of the most stressful things to pay off
A $200,000 mortgage at 4% interest over 30 years ends up costing almost $420,000. That’s because of interest costs and fees. In other words, nearly half of your house payment will go toward these costs! Sure, some people may have equity in their homes after many years (or decades) of making payments.
But do you really want to spend that much time paying off your house? If not, it might be a good idea to consider renting instead.
What are you spending your money on?
Before you can evaluate whether or not your home makes for a good investment, you have to know what you’re spending your money on. Look at everything from rent, utilities, and other costs of living to income. Is your house costing you more than it’s worth?
The length of time needed to recoup costs
While mortgage interest is tax-deductible, property taxes and upkeep aren’t. It can take years to recoup these extra costs. This means you may have to stay in your home longer than you want, eating into savings that could have been invested elsewhere.
What if you lose your job or face other emergencies
No home purchase is without risk. Some people lose their homes because of job loss or medical emergencies. It’s important to have an emergency fund of three to six months’ worth of expenses on hand so you don’t have to resort to credit cards and loans in case something unexpected happens.