November 25, 2013
Buying a home is probably one of the largest purchases you’ll ever make. No wonder a tough economy is prompting many to question whether it’s financially smarter to rent or buy a home. While it’s impossible to peer into the housing market’s future, there are 4 key considerations every potential homeowner should mull over when making the big decision.
What can you afford?There are plenty of things to love about home ownership – it’s just that everyday expenses aren’t one of them. Heating costs, utilities fees, appliance repairs, plumbing fiascos, leaky basements and lose roof shingles are expensive homeowner realities. Before purchasing a home, make sure you have the disposable income necessary for ongoing home maintenance and repairs.
Low rates are good ratesInterest rates are a major indicator of what you’ll have to spend over time to eventually own your home outright. Low interest rates can make the difference, allowing you to accumulate long-term savings — which is why many homeowners scurry to lock into a fixed low interest rate whenever available. Better yet, when making monthly payments, low interest rates ensure that more of the payment goes towards the principal balance, ensuring you pay off your mortgage faster.
How big is your down payment?Determining how much money you can afford to pay upfront when purchasing a home is key to settling the buy-versus-rent debate. In fact, your down payment determines the home price you can afford, the size of a mortgage you can carry, and accompanying insurance costs. Once you’ve set a down payment amount, make sure to ask yourself whether it would be wiser to purchase a home or to invest that down payment amount in other investments such as stocks or bonds.
Is it important for you to build equity?If you’re tired of watching your investment savings rise and fall, home ownership may be able to provide you with some stability. Although not a risk-free investment, home ownership tends to be less volatile than the stock market and can lead to capital gains in the midst of rising house prices.
What’s more, home equity can serve as valuable collateral for a home equity loan if needed.