In this low interest rate environment, many people are rushing to buy houses. There’s no doubt that this is a great opportunity to buy for those who are set on settling down in one place for a long time. However, for those who are a bit more unsure whether or not buying a place is a better option than renting, it’s important to understand some of the costs you often forget you’ll be incurring if you purchase your next home.
Repairs. If you move into your new house and a week later, a pipe bursts and floods your basement, as a homeowner you are on the hook for that repair. Not only do you have the added hassle of dealing with the repair (whereas in the past you could simply call your landlord), the expense is now all your responsibility.
Taxes. When you are calculating your potential housing payments as a homeowner, one great thing you’ll realize is that your mortgage payment will stay exactly the same each month for as many years as you have it. This is especially nice when you realize that with inflation, 30 years from now your payment will probably feel like a lot less in the context of other prices. However, the same can’t be said for taxes, which you have no control over and which can rise rapidly year after year, especially if your town becomes more desirable over time or has a good public school system.
Opportunity costs. It makes plenty of sense to save up a large chunk of cash to use as a down payment on a home and buying your home may certainly be a great investment for you over the long haul. However, spending that money on a house means that you don’t have the opportunity to spend it on other investments. That might mean not being able to invest it in the stock market, save as much for retirement or start a new business that you have been thinking about. That’s ok – you have to make choices in life all the time and there’s not always a clear right answer – but it is something to think about as you make the decision of whether to rent or buy.