24 Apr These 4 Questions Will Tell You If You’re Ready to Buy a Home
There are many good reasons to own the roof over your head, but there are many tradeoffs as well. Here’s how to decide if the time is right for you.
The housing market boom and bust taught us many lessons, including that home ownership isn’t such a “no brainer” after all.
No doubt, there are plenty of good reasons to own the roof over your head, both emotional and financial. But there are many trade-offs as well. With the added control comes a laundry list of responsibilities. With the stability of staying put comes a loss of flexibility. And with the opportunity to build equity comes the risk of losing money.
Here are five questions to ask before you make the leap into ownership.
1) Is my financial house in order?
If you’re already struggling to pay your bills, buying a home will only compound your money woes. Ideally, you’ve saved at least 10% for a down payment – keep in mind you’ll have to pay private mortgage insurance if your down payment is less than 20% — and that’s in addition to saving for retirement and building an emergency fund.
2) Am I sticking around for a while?
The old rule of thumb was that buying made sense if you planned to stay put for at least three to five years. These days, many financial planners are recommending an even longer window. “I say at least seven years because the transaction costs of buying a home are signification,” notes Vento.
When you buy, there are the costs of securing the loan, closing on the sale and moving, not to mention all of the miscellaneous items (fresh paint, new curtains) that can easily add up to thousands of rands. When it’s time to sell, you’ll lose a big chunk – 6% is typical – in real estate sales commissions.
As important as the numbers, is whether you’re ready to tie yourself down to a particular home in a particular city. “Depending on what you do for a living and the job market in your area, you may be better off continuing to rent.”
3) And what are the hidden expenses?
There are many additional costs of homeownership that unseasoned buyers tend to overlook, says Gugle. Four out of five buyers of new homes, including condos and townhomes, can expect to pay homeowner association fees. This additional levy – which pays for costs of shared infrastructure and amenities – can add hundreds of rands to your monthly expense, and it’s not uncommon for owners to get hit with special assessments for projects not covered in the regular budget.
Most single-family home owners will need to budget – money and time – for routine maintenances costs, as well as big-ticket projects, such as paint jobs and new roofs. “You have to be ready to take on all the things that come with ownership,” adds Gugle. “It’s not for everyone.”
4) What’s happening in my market?
Economists may talk about real estate in national terms, but the market varies greatly from one city to the next, even from one neighborhood to the next. Although home prices in most South African cities are still relatively affordable, some cities.
Then again, in many cities, the rental market is as competitive, if not more competitive.