Before you buy a home, see if it makes sense.

Home Ownership – Plan Before You Buy

As we mentioned yesterday, we decided to buy a townhouse in our city. It’s in a new development and we’ll have 3 bedrooms and 2 1/2 bathrooms. It’s situated about 5-7 minutes away from  the interstate, so the commute time will not change by much. It’s a big purchase, but we think we made the right choice.

This may have seemed a little sudden but we’ve been keeping an eye out for awhile while we were building our savings. I didn’t think I would mention it here on the blog until something happened.

Renting vs Buying

We carefully looked at the question: Can we afford the costs of home ownership? Many people assume that they can based on what they pay in rent. They figure if they pay $900 in rent they can afford a $900/month mortgage payments, but that isn’t necessarily true. Besides mortgage, can you afford to pay:

• Homeowner’s Insurance
• Private mortgage insurance
• Home Association Fees
• Property Tax
• Maintenance & Improvement

Looking at the same situation, if you still want to be a home owner, either you’ll need to have a lower mortgage or you will need more money to cover your expenses. The best option, though, may be to wait a bit more and continue renting. In fact, with some areas having a lot of empty homes, you may be able to rent a home at a decent rate. This gives you the option to test run home ownership without the big commitment.

Don’t just assume that buying a home is better than renting. You have to run the numbers yourself. Spreadsheet templates are an excellent solution to running the numbers easily. Find out and don’t just fall into the common myths of homeownership.

We used a spreadsheet to look at several houses in the area and saw what would fit in our budget and what would be too much or too risky for us.

What We Decided We Could Afford for Mortgage

If you remember from our examination of mortgage calculators, we decided to err on the side of safety and went with a more conservative mortgage amount. Our goal is to keep our housing costs (mortgage, taxes, and insurance) no higher than 25% of our monthly income.

We also decided to go for a lower mortgage because we are planning to accelerate mortgage payments and save tens of thousands on interest.

Taking the $8,000 Tax Credit

We’re also going to take advantage of the $8,000 tax credit for first time home buyers. The purchase has to be made before December 1st, 2009, it has to be our primary residence, and we have to stay in your home for three years. We meet the requirements as we see this as a long term commitment.

How about you?

What are your goals? Do you plan buying a home in the next few years? Is renting a better option for you and your area?

Photo Credit:  Fabio