Is buying a house worth it?
December 7, 2020
As a real estate professional who has worked mostly with buyers, I frequently get one specific question: Is buying a house worth it?
To be frank, I wish there were a simple answer. I would love to be able to tell people “yes or no” with great certainty.
But I can’t! The decision to buy a home instead of renting is a personal one. You have to make that decision based on your own personal circumstances, your goals, and (especially) your finances.
In this post, I’ll talk about some of the most important factors that can help you decide whether buying a house is worth it for you.
But first! A disclaimer: Although I am a licensed real estate broker and mortgage originator, I am not your real estate broker or mortgage originator. Please consult a professional about your specific situation before making any major decisions. Use this guide as it is intended: a general overview of concepts for educational purposes.
What makes buying a house worth it?
We know what you’re most likely thinking right now, so let’s talk about the financial implications of buying a home.
Your down payment
In our post about common home buying myths, we talked about down payments. Specifically, we mentioned that a 20% down payment, while solid common knowledge advice, isn’t actually necessary.
That being said, a down payment is still necessary. Most first-time home buyers qualify for FHA loan programs, which require only a 3.5% down payment. Others may even qualify for lower down payments through low-income programs held by their states or cities.
Depending on your market, you’re most likely going to have some closing costs. If you’re in a seller’s market in particular, expect to get very few credits from the seller. Mortgage origination fees from your lender, title fees to protect your investment from legal troubles… Then there are recording fees. And let’s not forget required prepaids, such as upfront charges for PMI or MIP and a few months of property taxes and insurance. If your home is located in an HOA or COA, you can also expect to pay a few months of assessments ahead of time.
Your lender will also want you to have some cash reserves left in your account after you close – generally a few months of your expenses.
Altogether, you can reasonably expect to pay 3-5% of your home’s purchase price at the closing table.
Other home buying costs
There are some other common expenses involved in buying a home. While they may not apply to every transaction, most of them are recommended for your protection.
Some of these costs include:
- Inspections, such as general home, sewer, and wood-destroying insects.
- Your appraisal, which will most likely be required by your lender.
- Gas and other vehicle-related expenses for the showing process.
- Potential time off of work for showings, inspections, and signings.
- A home warranty, which will cover certain repairs during the home ownership process. These are not required, but highly recommended for most buyers.
- If you’re getting utilities in your name for the first time, you will likely be expected to pay a deposit. Additionally, expect hook-up fees, transfer fees, and other possible charges.
- Finally, people frequently underestimate the cost of the move itself. Moving costs both time and money, so leave some room in your budget for it.
Before you move in, it’s highly recommended you get your home professionally cleaned and have your home re-keyed for safety reasons. Additionally, you may be surprised by some necessary home improvement. You may need to clean the gutters, re-caulk the bathroom fixtures, or service the HVAC system – particularly if the home has sat vacant for some time or if you’re buying during a seasonal change.
Of course, then there’s all the repairs, improvements, and upgrades you planned in your mind when viewing the home. How much will it cost to make your home comfortable for you? Will you be purchasing furniture for your space as well?
Factors in the rent vs. buy decision
In addition to making sure you’re financially ready for the home buying process, it’s important to assess your own situation.
One excellent resource I direct all my buyers to is NerdWallet’s Rent vs. Buy calculator. I highly recommend playing with the numbers to see where your monthly housing expenses are likely to end up.
I will say that in general, rental prices are rising in many markets, while mortgage interest rates are sitting at historic lows. This makes homeownership significantly more affordable for many people. If you’re on the fence, certainly run the numbers.
Another major factor is how long you plan to own the home. You don’t have to commit to owning a home for 30 years to make it worth it. But it is important to plan to stay in a house for at least a few years, unless the market is showing signs of rapidly appreciating in the next few years. If you’re able to predict that sort of market shift, of course, be sure to reach out to us to give us next week’s winning lottery numbers as well.
Note that I didn’t say how long you plan to live in the home. If you’re able to secure a low enough monthly payment and your market is conducive to renting, you could potentially net income by keeping your home and renting it out should you choose to move.
(Consult with a financial professional before you pursue this option, of course.)
When is buying a house worth it?
Sometimes, the stars align.
There are a few signs that the time is right for buying a home:
- When you’ve got the credit, income, and savings to afford the purchase (and the cost of homeownership).
- And once you’ve been able to qualify for financing.
- If you’re planning to own the home for a while – either by staying in it, or by finding a good potential rental property to buy and hold.
- When mortgage rates are low or you find a great deal on a home.
- And only after you’ve put together a good team of professionals to help you (and gotten the necessary education on the home buying process).
- When the cost of renting has exceeded the cost of homeownership.
Is buying a house worth it under other circumstances? I’ll be honest: not likely.
Ready for more?
If you’re planning to buy a home in the near future, we’ve got a great offer for you! For the very low cost of free-ninety-nine, we’re providing a downloadable guide of the most common home buyer mistakes. You can receive the guide for free by signing up to our newsletter.