For the first nine years of our relationship, my husband and I were renters. We jumped from city to city and apartment to apartment. For many years, apartment dwelling made the most sense – financially and practically. We didn’t have funding for a down payment, and we weren’t sure what city we wanted to put down roots in. Also, we were young and child-free – renting in the cool and happening part of town made the most sense for our lifestyle.
But last March, we finally made the leap to home ownership. And I’ve never been happier (or more broke).
Read on to find out how we knew buying was the right choice, as well as our big money mistake.
To determine whether you’re ready to buy, consider these factors:
- What’s Your Long Term Plan?: If you plan to be in the same city for 7 – 10 years, it’s probably a wise move to buy a home. But if you may move in the next few years – whether for work, family, or a simple change of scenery – it may be better to keep renting. This calculator from the New York times is great for determining when buying is better than renting – for example, if home prices go up 2% a year, rent increases 3% a year, your home price is $172,000 and rent is $1,100, you can put 20% down, and your mortgage rate is 5.5% and property taxes are 1.35%, owning will be better than renting after five years.
- Make Pretend Mortgage Payments: We used online mortgage calculators to determine what our mortgage would most likely cost (they aren’t exact but are close). Once we determined our mortgage to rent difference (it was about $250), we stashed aside that money for three months to make sure we could really afford it.
- Consider Your Down Payment: If you can put down 20%, you’ll avoid paying PMI (private mortgage insurance). A larger down payment also means that lenders view you more favorably. However, a smaller payment isn’t necessarily a deal-breaker. We put down much less. Another factor to consider is that you don’t want to clean out your savings to make the down payment because…
- Establish an Emergency Fund: Set aside several thousand dollars for emergency home repairs. You never know what will break! On that note, pay attention to the inspection. Our inspector said our HVACs were ‘on the way out’ but we didn’t realize he meant that they could break tomorrow… which they did. Costing us $5,000 the week we moved in! I wish we had paid more attention to the report and fought to have new HVACs put in. All I read was that they currently worked.
We love the emotional side of owning a home, especially now that we have a baby. And I hope it was a good financial choice in the long run! But I guess only time will tell…
How did you know when you were ready to make the leap to home ownership?