Can You Afford to Buy a House?
One of the most important financial decisions you will ever make is what house to buy. For many people, the house they choose is the same one they will have for the rest of their lives. It’s not a decision that should be made lightly, especially because buying a house can come with some often overlooked costs. Before you settle on a house, you should ask yourself if you can afford to buy it. Here are some factors you should be considering as you make your decision.
The Cost of Housing
The housing market is not in a good place right now, as in most areas of the world, houses cost more than they did ten or fifteen years ago. We are starting to see a decrease in the cost of housing, beginning just a few years ago, but this has been a slow drop.
The decreasing prices come from a recovering economy. As the economy improves, so too will the housing market. If the market manages to continue improving, prices will continue to lower. This means it might be wise to wait for a few more years to purchase your house.
You also have to consider if you can afford the house at this time. You may want the security and stability a house offers, but you may not be able to comfortably make the payments. Consider where you are right now and where you plan to be in a few years and see if it really makes sense for you to buy right now.
The Down Payment
Many banks will ask you to make a down payment of 20 percent of the total price of the house. Many people cannot make that payment, but they can save a lot of money over the course of their mortgage if they can make a larger down payment in the beginning.
A lower down payment means you’ll owe more money for your mortgage, and will likely be repaying over a long period of time. This is going to up the total cost of the house substantially. You can use this mortgage borrowing calculator from Clydesdale Bank to get an idea of how big a difference it could make.
Once again, you may want to wait until you have the funds available to be able to afford the house before you plan to buy. You should start saving out the money for the down payment so the entire price will be less.
The Length of Your Stay
It doesn’t always make sense to buy a house just because you have the money to do so. You may have plans to move to a new area in a few years. If you buy a house then decide to move not long after, you will need to find a buyer for the home. That can take months or even years, and it can hold you back from doing what you want to do.
You should factor in the anticipated length of your stay when you are considering buying a home. For stays less than ten years, it is usually best to just rent and save up your money for a house you will actually be able to pay off and enjoy living in.
Photo courtesy of: tkoch
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