You know that buying a new home is expensive. However, you might not understand that a significant portion of that cost happens up front, when you close on the home. Transaction costs come in the form of title fees, home inspections, loan origination fees, appraisal fees, and other closing costs. Long term, these costs would be recouped as you gained equity through your house payments and the home’s appreciation.
If you sell your home in two or three years, you won’t have had enough time to grow your equity. As a result, you won’t break even and will lose money in the process. Financially, owning your home for a short period of time is rarely a good idea.
Here is an example: You bought a $150,000 home three years ago. When you bought the home, you made a down payment of 7,500 (5%) and covered closing costs of $6,000. Since you bought the house, you also replaced the furnace at a cost of $4,200 dollars. That’s a grand total of $17,700 that you have invested in the home above and beyond your monthly house payment.
If you had a $142,500 loan ($150,000 minus your $7,500 down payment) in the form of a 30 year mortgage at an interest rate of 4.5%, you will have only paid off $7,219 of the loan’s principle. That leaves you $10,481 in the hole.
What if your house went up in value during the past three years? The house would need to have gone up in value at least $10,481 (a selling price of $160,481) for you to break even.
If your job is not secure or you are planning to move in the next few years, renting might be a better option.
Are you beginning to think there’s a lot you need to consider when buying your first home?
You are absolutely right. Today’s homebuyers need to digest a lot of information and make many decisions that can have a huge financial impact on their future. Don’t worry. The HomeOwnership Center of Greater Dayton is here to give you the knowledge you need to make those decisions with confidence.
Call us at 937.853.1600 or visit our Homebuyer page to learn how we can help you buy your first home.
This is the fourth post in the series, Are You Ready to Buy Your Own Home? You can read the other installments in the series by following these links:
Part One: Is Your Credit History Good Enough to Buy a Home?
Part Two: Have You Saved Enough Money to Buy a Home?
Part Three: Are You Mortgage Ready?
Part Four: Are You Planning to Stay in the Home for the Next 5 to 7 Years?
Part Five: Are You a Realistic Homebuyer?
Part Six: Do You Know Enough About the Homebuying Process?