If you’ve been looking for a house to rent, then you know how hard it is. Almost nothing’s available in Ukiah, and the houses that are, feel overpriced. Rather than wasting time looking for a rental or spending too much for a house you don’t really want to live in, I have a suggestion: purchase your own home.
If this makes you raise an eyebrow in curiosity, read on. What are the criteria for considering home ownership over renting? Purchasing your first home is a huge decision. Obviously it’s one of the largest financial decisions you’ll ever make, but it’s also one that will change your lifestyle, and it’s not a decision you can easily undo.
Before you hand over tens of thousands of dollars in cash for a down payment and commit yourself to monthly payments of $2,000-$4,000, you need to be certain you want to be a homeowner and that the home you’re considering is, in fact, the home you want to be in. This doesn’t mean you’re committed to this house for life, but you should be committed to staying there for several years.
With that in mind, be sure to find a house that can grow with you, at least initially. If you and your spouse are newlyweds planning on having six children in the next six years, a two-bedroom house that feels roomy today will soon feel crowded.
How do you know if you’re ready to own a home? Let’s start with the basics. First, you must have access to a down payment, whether you find a loan designed for a first-time homebuyer or a more conventional loan requiring a 20 percent down payment. And then, of course, you’ll need enough money to pay the monthly mortgage payments, including tax and insurance.
On the plus side, your rent won’t go up—and if interest rates eventually drop below the rate you secured, you can refinance the loan and reduce your monthly payment a bit. In addition, most of your mortgage payment and property taxes are tax deductible. In today’s world, the after-tax cost of mortgage payments, taxes and insurance on a starter home are very likely less than your rent would be.
Unfortunately, there are some additional expenses that come with home ownership. You’ll need to maintain your new castle. Although the commitment is significant, in my experience, it’s worth it.
When you think about home repairs, your first thought might be, “Hey, I’m pretty handy. I can take care of things myself.” But unless you’re a licensed contractor, roofer, plumber, electrician, and appliance repairman who knows how to lay carpet and install tile, you’re likely to need professional help from time to time. Because while you can repair a broken gutter, eventually your water heater will need replacing, your carpet will wear out, and your roof will leak.
To determine the amount you need to budget to maintain a home, I recommend saving 3 percent of the purchase price for repairs and upkeep. If you don’t spend it this year, set it aside for the future. Obviously this number depends on the age and condition of the property in question, but it’s a good rule of thumb. If you buy a 75-year-old farmhouse in poor condition, 3 percent won’t be enough. If you buy a new home, your maintenance costs for the first several years should be minimal. Regardless of what type of home you buy, you should plan on some maintenance expenses.
To sum it up, if you have sufficient funds for a down payment and enough income to afford mortgage payments, taxes, insurance and maintenance—and you’re in a relatively stable financial position with the ability and desire to stay in one place for the next several years, consider buying a home. Just think, when you want to hang your Great Aunt Mathilda’s portrait, you won’t need to ask permission from anyone except your spouse.
If you have questions about getting into real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.