It’s the American dream: to win $50 million in the lottery, have your own entourage of supermodels satisfying your every whim, and inviting everybody back to your fantastic Playboy Mansion-esque house for a barbecue. Or perhaps your American dream is to become a movie star, lounging around your Beverly Hills home while taking a quick break to thank the Academy. Regardless of the dream, a big beautiful house is definitely in the picture (what, are you gonna dream about renting?). Well, we have news for you: buying your own house does not have to be a dream. Your house may not be a mansion, but follow our steps and you’ll be on your way to legitimate home ownership. (And don’t worry… we don’t recommend squatting except as a last resort.)
But before we even start you on the road to home ownership, you first have to be sure that you really want a house – it’s a big responsibility. Owning a house has many advantages, but depending on your personal situation, you may be much better off renting an apartment. Let’s compare.
Benefits of buying a house
- With an apartment, you’re limited to how much you can personalize your living space. With a house, you can do whatever your heart desires.
- With a house, over time the mortgage balance decreases and equity builds. With an apartment, you gain nothing over time, except maybe a higher rent.
- With a house, there are homeowners exemptions you can take on your taxes. With an apartment there are tax exemptions too, but only for your landlord.
Drawbacks of buying a house
- With an apartment, you can move when the lease is up, but with a house, you have to sell it first.
- With an apartment, the landlord is responsible for any repairs. With a house, you are the landlord. If it’s broke, either you fix it or pay someone to fix it for you.
- With an apartment, you don’t gain equity (the difference between the market value of the house and the outstanding mortgage balance), but you don’t lose any either. With a house, equity can go up, down or stay as is.
But the biggest advantage to owning a house over renting an apartment is that your house belongs to you. It’s your home, and that’s pretty darn cool in itself.
Make sure you can afford to buy a house
Are you good at keeping to a budget? Is your credit in good standing? Do you have tremendous amounts of outstanding debt? If your answer to these questions is to stare at your feet in embarrassment, you may not be in the best financial shape to buy a house at this time. We’re not asking these questions to make you feel guilty about any bad money habits you may have. That’s just a fun little side effect. But before you start looking at houses, you first have to get your finances in order. Here’s how to do it:
- Pay off any outstanding debts.
- Don’t incur any new debts, like buying a new car or putting a trip to Europe on your credit card. Mortgages are based on “debt to income” ratios (what you spend monthly versus what you bring in). Taking on substantial new debt would throw the ratios out of your favor.
- You can get a rough idea of how much a mortgage will cost by consulting one of the many online mortgage calculators.
- If you really want a house, put yourself on a budget now. You might as well get used to it and doing it early will help you put a few extra dollars aside. Along with mortgage payments, you’re going to have other costs like home repairs, home improvements, home insurance and general home maintenance that you didn’t have when you were renting. You’re going to need every extra penny you have.
- Along with whether you can afford a house, you should consider if now is a good time to buy. House prices have skyrocketed recently and interest rates have gone up. Prices may not go down any time soon. However, the real estate market moves in peaks and valleys, we currently seem to be entering into a buyer’s market (housing demand is low and supply is high) rather than the seller’s market (housing demand is up and supply is low) we just experienced. There’s less chance of getting into the bidding wars buyers were suffering from in the past year or so.
- Different cities have different real estate trends. It’s obviously much more difficult to find an affordable new house in an up-and-coming city than one that’s on its way downhill. So if you don’t care where you live, then check out different cities and see where you can find a good market. The Midwest is always a good place to begin such a search because the cost of living is lower than on the coasts.
Either way, you take a chance. If you feel you can afford it and you’re ready to buy a house, then by all means, now is the time to find your new home. But if you’re really lucky, the aforementioned entourage of supermodels will buy your house for you.
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