Would you recommend purchasing another house right now, or should we stay out of the market until things settle down? Is it time to buy a home? That depends on your situation. Can you afford to buy? Would you qualify for a mortgage? If you answer “no” to either question, this is not a good time to buy a home. If you are currently a home owner, the expenses of owning your home are built into your budget. It should be easy for you to determine if you can afford to buy another home. If you are renting, determining what you can afford is a little more challenging. Here are some considerations that apply to anyone who wants to purchase a home. First, determine if you might move from the area, within a couple of years. If you need to move for any reason, buying could be much more expensive than renting. Even if you are already a homeowner, it may not be worth it to move into a new home, for only a couple of years. Consider these costs: There are moving expenses, decorating the new place, regular maintenance, repairs, and closing costs on the new mortgage. For the first couple of years, most of your mortgage payment goes towards interest, not principal, meaning, the only significant equity you may build, will come from the home appreciating in value. Here is a common mistake people make. They think they can afford a home just because the new mortgage payment is roughly equal to their current rent payment. Unfortunately, it is not that simple. Your expenses as a renter are limited. Your expenses as an owner are all inclusive. All expenses are your responsibility. Once you go to sell your home, there will be even more expenses, plus a real estate commission. Just to break even, your home may need to appreciate at least 10%. Owning a home for a short period of time is not always profitable. So in some situations, renting can be a wonderful experience. Regardless, there are plenty of reasons to be a homeowner, and we'll discuss those tomorrow.
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