The All American Dream is to own a home of your own. Many people think that paying rent is a waste of money. But when you do buy a house, you have more expenses than when you rent that many people do not consider. The monthly house payment may be similar to your rent payment but you will have utilities that may have been included in your rent payment. When you own a home, you have utility bills, garbage and water bills. You either have to do your lawn work and snow removal, or have it hired out which is another expense. Also, you have to have money saved for unexpected expenses and regular upkeep and repairs. When you rented, if something went wrong you could call the landlord. Now it is up to you to either fix it or you have to hire someone to do it. While renting the landlords were responsible for updating the carpet and painting. Now that is your responsibility. There will also be increased insurance expenses.
When you buy, in most cases you need a down payment besides your monthly mortgage payments. It is recommended to have as high a down payment as you can. If you do not put 20% down, you will have to pay Private Mortgage Insurance (PMI). In recent years, in many cases people have been able to get a mortgage without having to put any or very little money down.
It is recommended if you are thinking of buying a house, to put that amount of your anticipated monthly mortgage payment away, while you are still paying rent. If you can do this consistently for 6 months or so, you should be able to afford your mortgage payment.
Many people end up in homes they can’t afford when the beginning payments are too easy. In some cases, there are interest only mortgages. That in the first years you pay only interest on the mortgage. In these cases, you do not build any equity and in some cases when the market goes down, the value of your house could go down and you end up owing more on your house than it is worth. When this happens and you have to sell for some reason you would then have to come up with the difference.
A couple may think they can afford the house because they can make the payments but if something happens that they lose one of the incomes then they get into trouble. Experts say that younger people are living in homes and own cars that took their parents 30 years to afford.
So while owning a home is a great thing, it is also important to make sure you can afford it, so it does become a dream instead of a nightmare.