Home ownership considerations
A home isn't usually a good short-term investment. Generally speaking, consider buying a home if you can afford to live in it for several years or more.
Before you buy, it’s important to consider what kind of effect such a large purchase will have on your financial situation and lifestyle. Here are some points to keep in mind before making your decision.
- You may be able to deduct your annual mortgage interest and property taxes on your federal tax return.
- You will pay off more and more of the principal over time.
- You may be able to borrow against your home to make home improvements or consolidate debts with a home equity loan.
- You stand to profit from selling your home if the value has significantly appreciated.
- You may be able to exclude the gains on selling your home from your taxable income if you meet certain IRS requirements. A tax accountant can provide guidance.
- Unless the value of your home rises quickly over the first few years of your mortgage, you may lose money if you sell it too soon.
- You'll pay more in property taxes if your home's value rises.
- You'll lose money if you sell your home at a time when its value is down. Before you buy, make sure to consider factors such as schools, comparable homes in the area and the housing market. That way you can forecast whether a prospective home might depreciate in value.
- Your home-buying costs can add up when you include realtor's commission, points, loan origination fees and other closing costs.
- Your costs add up right after your mortgage closes. Be sure to have a financial plan for your moving costs, renovations and new furniture. These expenses are incurred by most home buyers as soon as the mortgage process is complete.
- You'll be responsible for home improvements and maintenance such as repairing or replacing major appliances, air conditioning and heat, replacing the roof, and lawn care.
- If you have a great apartment with inexpensive rent, it may be difficult to own a home for the same cost. Buying a home also means that you can't just pick up and leave as easily if you have a job change or another life event.
Remember to keep an open mind as you weigh these pros and cons and work toward an informed decision. Still can’t decide? In that case, you may be well advised to put your buying decision on hold as opposed to rushing into a choice you could come to regret.
Keep it up. You're getting smarter about home buying.
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