The Myths and Truths of Home Ownership
For many of us, buying and owning a house is part of the American Dream. It shows that you have worked hard and been successful in your career. Buying a house is a way of showing your success, and for many the first step in settling down or starting a family. Unfortunately, many first time home buyers end up in over their heads because they buy into some common myths of home ownership. We take a look at a few of the myths and give you the truth about buying a house below.
Owning is Cheaper Than Renting
One common myth of purchasing a house is that it will be cheaper than renting. Sure, owning a house looks cheaper initially when you compare the mortgage cost to average rents which have went up year after year just about everywhere. But home ownership has a lot of other hidden costs that people forget about - sewage, trash, water, etc. A lot of times those types of costs are included in your monthly rent, but as a home owner those are ll your responsibility.
Not to mention, you will have to purchase home insurance which is more expensive than renters insurance - which most people don't even purchase while renting. If you have a sub-prime loan, you'll also be required to buy additional insurance to back the loan in case you were to default. If you add up the true and total costs of buying a house, chances are that things will look a lot more equal.
You'll Make Money
Many people jump into house buying thinking that they will make a windfall of money. Sure, on a long enough timeline any house is probably going to increase in value. But if you actually factor in how much you have spent to maintain your property, the truth is that you have probably lost money or at least wiped out most of those gains.
Then there are the fees. When you first purchase your home, you need a down payment and pay a realtor as well as a home inspector. Those costs should be factored into your bottom line. When you go to sell, you will be paying a realtor again. A potential buyer may also ask for help with closing costs, or ask that you make repairs or changes to the property before signing on to buy it.
In a hot enough housing market, or in an in demand neighborhood you can definitely make a nice profit with great timing - but the margins are going to be slimmer than you probably expect all costs considered. That doesn't mean you should avoid buying a house, it just means that you should be ready to put in a lot of sweat equity to keep your margins up.
Houses Are Easy To Maintain
Sweat equity brings us to our next myth: houses are easy to maintain. If you have always rented, or grew up mowing your parents lawn or washing the dishes then home ownership probably seems like it will be a piece of cake. That couldn't be further from the truth.
When you are renting a place, it's easy just to call the landlord when something goes wrong. Chances are, by the time you get home from work the problem has been fixed. If the problem is big enough and will take an extended time to repair, most apartment complexes will even temporarily place you in another unit.
That's not how it works when you own your house. If something breaks - it's you the homeowner who will have to do the repair or flip the bill to have someone do the job. Many homeowners learn how to become DIY'ers real fast when they see how much maintenance and repairs can cost. A big enough repair could be handled by an insurance claim, but then there is a deductible to pay and most likely a large claim will raise your insurance premium when it renews.
You'll Build Equity
For most people it takes years to build equity. That's because on many kind of loans you are paying the interest first, while a very small percentage of your loan payment goes towards the actual principal. That means that the balance goes down very slowly and many homeowners don't see much equity for ten or fifteen years on a house.
You can try to build equity faster by taking on a smaller loan and placing a larger down payment, but it is still going to be awhile to see any real equity that you can use. If you get lucky or buy in a hot neighborhood, equity can build faster as home values rise - meaning that the value of your house is now higher than the loan you have.
So Should You Buy a House?
As you can see, home ownership isn't for everyone. If you are still going places in your career on unsure about "settling down" just yet it might make sense to wait. That said, we have to admit it feels really good to call a place home, and know that this little piece of earth is ours.
What Do You Think? Did You Buy a House and Regret It? Comment Below