Are you among the millions of people who consider homeownership a dream? Do you think of it as the pinnacle of maturity and adulthood? If so, you are like many in the world, and yet it might be that you are falling for one of the common misconceptions about homeownership. It is of the utmost importance that you address such issues before you purchase your first home because rushing into homeownership can end up being a nightmare rather than a dream.
Realities about Homeownership
- You don’t need 20% down – If you are holding off or leading a very frugal lifestyle because you are struggling to put together the 20% down payment, stop. As one expert said, “Many first time home buyers believe you still need a 20% down payment before you can get approved for a mortgage. While that used to be true a few decades ago, that’s no longer the case these days.” Instead, there are FHA loans that allow people with low credit scores, small down payments, and other issues to still get approved for a mortgage.
- You might be better off renting/owning – There are a lot of people arguing one or the other here. The reality is that it is your financial scenario, your life goals, and your lifestyle that determines the right answer. Do you like someone else doing all of the upkeep? Do you even have the time to do yard work, repairs, and DIY work? Maybe you really want to do this, and you are ready to settle in one area. You have to consider every facet of your life to know whether your renter’s lifestyle is right or ownership would be better.
- You have more money if you rent – Many potential homeowners are told that they can save if they keep on renting. Told to invest all of their “extra” income in investments, they are told they’ll get better returns than 30 years of home ownership. This is patently misleading and a major “if” sort of statement. What we mean is that there is no guarantee that anyone renting has any extra income. There is also no guarantee that markets will generate more than equity in a home. Yes, many are told that homeownership is an investment, too, which can also be misleading. The simple fact is that homeownership means equity, which means wealth. Renting and investing can yield returns, but not in the guaranteed way that equity does.
- Mortgage payments are the only expense – If you use any online calculators for buying a home, you see that pricing is usually set at PITI or principal, interest, taxes, and insurance. You might see HOA if the property is in a development. Yet, ownership means maintenance, water/sewer, internet and cable, fuel and utilities, and so much more.
It is easy to misunderstand homeownership and make the wrong choices. Hopefully, these tips have helped to clarify some of the more common misconceptions and steered you towards the best path for your budget and lifestyle.