What to Consider Before Buying Your First Home
Home ownership is the dream of most young people. After all, our parents and grandparents sacrificed a lot buy their homes, so it is understandable that we want to own our own home too. Unfortunately, it has never been a more difficult time to buy a home. Property prices are soaring in many parts of the country and mortgage lenders are less keen to lend than ever before, despite the fact that current mortgage rates in NJ are at an all-time low.
This unique set of events makes it incredibly hard for younger people to get a foot on the housing ladder. As a result, many 20-somethings dismiss the idea and end up renting indefinitely instead, even though renting is insecure and more expensive. So is buying a home a good idea, and if so, what do you need to consider before you start looking at starter homes?
What is So Great about Homeownership?
There are many advantages to owning a home, but the main ones include:
– Capital growth is the main advantage. Property prices tend to rise over time, so if you buy a home for $100k now, it could be worth $150k in ten years’ time. Whatever capital gain you make is money in your pocket when you come to sell, minus any relevant taxes of course. The downside is that your money is tied up in a place where you cannot access it quickly.
– Mortgage interest is tax deductible, which is great news when the time comes around to filing your annual tax return.
– Owning a home is more secure than renting one. There is no landlord to kick you out on a whim, so you can raise your kids with no fear of ending up out on the street with nowhere to go.
– You are free to turn your property into a home once you own it. This means you can decorate how you want, extend it if you need to, and treat it with absolute disdain if you feel like it (although this is not recommended). Living in rented accommodation is very different – any changes you make have to be met with landlord approval first, so it will never feel like ‘your home’.
The Disadvantages of Home Ownership
There are also some disadvantages, including:
Buying a home is a huge financial outlay. This will probably be the biggest single item of expenditure you ever make, so it is not a decision to be taken lightly. If you take out a mortgage and subsequently lose your income, you won’t be able to make the repayments. In the short-term, this will cause a lot of stress and in the long-term, the bank will foreclose and you will lose your home. Worse still, if the bank sells it for less than your outstanding mortgage, you will still have that debt hanging over your head with nothing to show for it.
Maintenance is easy when you rent a home. The landlord pays for everything and all you have to do is give the workmen access. If you own a home, all maintenance issues become your problem. Even routine maintenance can be expensive, and if your finances were already stretched to the brink, a broken down boiler or hole in the roof would be a disaster.
Before You Decide…
Consider how stable your finances are. You should never buy a home without being realistic about your future earning potential. If you are currently struggling to make ends meet or you are on a temporary contract at work, this is not a good time to buy a home. On the other hand, if your career is stable and you realistically expect to be in the frame for promotions and raises over the next few years, you are in a much better position.
The other thing to consider is whether your career might necessitate a move to a different state or even country at some point in the near future. If this were to happen, you may need to sell your property.
Many people buy a home with their partner or spouse. Unfortunately, when the relationship breaks down, there is a real risk that you will need to sell the property so each person has enough to buy a separate home.
Buying a home is not a decision to be taken lightly. In many ways, property ownership makes perfect sense from a financial perspective, but it may not be right for your personal circumstances. Always take professional advice and evaluate your circumstances carefully before you buy.