If home ownership is a personal goal for you, then you and I have something in common! I'm excited for the day that I have a home sweet home, and I am constantly thinking about what it will take financially to get there. Here are some questions we should all ask ourselves and steps we should take in deciding to take the leap from renters to owners.
- How long would you plan to live in your new home? The general consensus is that if the answer is three years or fewer, keep your renter identity until you're ready to settle in a bit longer. It takes some time to break even on the closing expenses.
- Are you ready to give up the flexibility of renting? When my washing machine broke a few months ago, it was replaced with a new one free of charge. You will have higher maintenance fees when you own a home.
- How much do I need to save for a down payment and closing costs? If you put a minimal down payment, you may need to get private mortgage insurance until you have sufficient equity in the home. Closing expenses generally range from three to eight percent of the house price, depending on various factors.
- Will I have enough money each month to pay the mortgage, insurance, maintenance costs, and property taxes? Suze Orman wrote about an exercise that I think is worthwhile. She noted that, on average, you need to add another 40 to 45 percent to your monthly mortgage payment to get a more accurate total monthly cost. Assuming that your mortgage payment is similar in cost to your rent, open up a savings account and deposit the equivalent of the 40 to 45 percent to get an idea if you could handle the extra expenses.
Using a buy vs. rent calculator can be a helpful when figuring out if you should rent or buy your abode.
For informational purposes only. Consult your financial adviser regarding the benefits of buying or renting. Total Deposits at Washington Mutual are FDIC insured. Thank you to WaMu for sponsoring this post.