Personal Finance Ology

Everyone seems to say that buying a home is always better than renting. Well tell that to all the people in the states hardest hit by the subprime crisis. They now know that there are risks associated with owning a home. It isn’t always a good idea to buy. I plan on giving you a few things you should think about before making the plunge into owning your new home.

Reasons to buy:

You plan on settling down and would really like someplace more permanent.

Over the long term, they tend to be good investments. The population keeps growing but land doesn’t, the price of homes with land should theoretically keep going up.

You are benefiting from your monthly payments, not your landlord. Often your payments are going to be larger when you are buying your own home, but some of that money goes to pay down the mortgage. This is money you will get back when you sell.

Reasons not to buy:

You plan on moving soon. Realtors take out huge chunks of the sale price. If you buy then sell shortly after, it is hard to get all of your money back. Even if you are in a good market, the price of the house would have to go up significantly just for you to break even.

If you don’t need a lot of space. Sharing an appartment with another person or two is often cheaper than buying your own place. If you don’t mind living with others, you could probably save more money if you shared an apartment with a few other people.

You are lazy and don’t like taking care of a yard. Either you have to do the work yourself, or you have to hire someone to mow the lawn. This costs you either time or money which I’m sure you don’t have enough of.

Things to think about before you buy:

If you are really interested in saving money, do the calculations before you buy. I would assume that the value of your home stays the same to be on the safe side. To make a like comparason of home vs rental, figure out your monthly payment for both house and rental. Make sure you include all the small things that go along with a house like maintenance, taxes and utilities.

For an amortization schedule and calculator check out this amortization calculator. Here you can see how much you actually are ‘paying down the house’. Most people are surprised to see how little of it goes to pay down the house. In the first few years of home ownership, most of your mortgage is going to pay interest to the bank. Very little of it is going to pay off your home.

Related posts:

1. Am I Financially Ready For Home Ownership?
2. Create Your Dream Home And Put Money In Your Pocket
3. How Much Home Can You Afford To Buy?
4. Money Hacks Carnival: Bailout Edition
5. The Basics of Interest (Part Two)