So you’ve been paying rent because the housing market has scared you, but a realtor has just thrown temptation in your way. A property similar to the one you’ve been renting has come on the market, and the payment is a couple of hundred less than your rent. Now it’s a no-brainer. Now is the time to buy- right? Before you sign on the dotted line, you’d better sit down and look at a few realities: [Thanks L!]
When Bill Douglass and his wife bought their first home, he budgeted for $250 a month for maintenance costs.
He soon found out that it was $300 a month — just to maintain the lawn.
“I have to admit, I was rather naïve about the costs involved in being a homeowner,” he said.
Two months after they moved in, a FedEx truck accidentally backed into the house, damaging the gutter. That was $900. Then they had a baby girl! It cost an estimated $10,000 for the first year of a baby’s life, according to this baby calculator. Then, the air conditioner went on the fritz. That was $8,000 to replace it. They soon discovered that their neighborhood is prone to power outages, so they needed to consider dropping $10,000 for a backup generator.
“Most people are unprepared for the big repairs — and even the small repairs,” said Guy Cecala, publisher of Inside Mortgage Finance magazine. “When the toilet starts flooding, you can’t call someone like you did when you were renting. You’ve got to fix it yourself.”
Diana Olick goes on to list “20 hidden costs of homeownership”, and it would be a good list to consider before making any commitments. I would add a couple that Olick missed.
1. ROI on your downpayment- In a declining market, what are you earning on your downpayment? The answer- less than nothing. You’d be better off putting your money in a savings account in the bank. For those who say, “Yes, but it will be off in the long term”, I would like to point out that if you can save money by renting, you’re better off financially saving the difference until the market starts to turn around.
2. The potential risk if you need to sell- Suppose you decide that you are in it for the long-term, so you don’t care if you lose money in the short-term. Then you have a job transfer, or heaven forbid, you lose your job. Now you could be selling at a loss. In a recourse state, you could be on the hook for the loss. If you have a large downpayment, you could be kissing a lot of that goodbye. If you have a spouse staying behind to sell a property, you could be looking at a long separation. If you end up walking away, you could end up with a big ding on your credit.
I’d rather own a house than rent, myself. I love to redecorate and remodel and redo the landscape. I’ve been a renter for the past five years though because I’ve got to consider things like braces and college for the kids and with luck, a comfortable retirement for me and my husband. If you can make the numbers work while owning a home- good for you. Just make sure you can make the numbers work before you “get off the fence”.