While homeowners can take advantage of the many benefits of buying a home, there are also a few drawbacks that prospective homebuyers should be aware of before jumping in feet first. There are several costs associated with buying a home. One of the most popular – and costly – is the down payment. While you’re not required to make a 20% down payment, even the required 3% – 3.5% minimum is typically in the thousands. For example, if you’re purchasing a $200,000 home, your minimum down payment could be $6,000 – $7,000, depending on your loan. And if you don’t put down at least 20%, you’ll also need to pay private mortgage insurance (PMI). In addition to the down payment, you’ll also be required to pay closing costs, which are fees that are charged to complete your real estate transaction. They’re due at closing and typically range from 3% – 6% of your home’s purchase price. In the example above, you’d pay an additional $6,000 – $12,000 in closing costs on that $200,000 home.Upfront Costs
Time To Build Equity
While home equity can be a major financial benefit of owning a home, it does take time to build it. You can build it slowly but surely as you pay down your mortgage balance. You can speed this process up by making extra payments to your principal balance. Or start with more equity in your home by making a larger down payment when you purchase the home.
While the market is hot now, it can cool, requiring more time for home values to rise. You can increase your home’s value by making renovations or adding certain features. Of course, this will cost money to do.
Market Fluctuations
As mentioned above, the housing market fluctuates. These can be a disadvantage if you’re buying a home in a seller’s market. That’s because you may have to deal with competition with other buyers and higher listing prices. You may have to wait it out.
For homeowners trying to sell their home, a buyer’s market can be a big disadvantage. Because there’s more supply than demand, you may have to deal with competition with other sellers. This may mean your home will sit on the market for longer or sell for less.
To avoid this disadvantage, consider the real estate trends in the areas you’re looking and time your purchase when it can benefit your most.
Time Isn’t Always On Your Side
Those wanting to enjoy the benefits of owning right away really need to consider just how long it takes to buy a house. Not only can the decision to buy a house and the home search take longer than expected, but so can the financial preparations needed to ensure you’re in a good position to buy a home and afford the upfront costs, maintenance and repair fees and other regular home expenses. That brings us to our next disadvantages of owning a home.
Maintenance And Repair
People often focus on the upfront costs of buying a home, including the down payment and closing costs, but there are several costs of homeownership that should also be considered. Along with day-to-day expenses, like cleaning and utilities, there are also maintenance and repair costs. And depending on the problem, they can be expensive. If you have roof issues, water damage, plumbing or HVAC problems, you’ll likely spend thousands of dollars to fix them.
Property Taxes And Other Regular Fees
Along with maintenance and repairs, there are reoccurring costs associated with owning a home. Property taxes are typically paid semiannually, depending on where you live and how much your home is worth. As a mortgage holder, you’ll also need to carry homeowners insurance, which can cover your home from damage and liability. Your lender will usually roll these costs into your monthly payment.
There’s also the money you pay regularly to run the heat, electricity and water. And if you’re part of a homeowners association, you’ll also pay HOA fees.
Less Flexibility
When you become a homeowner, you make a long-term commitment to a location and house. Renters are typically tied to a lease that runs anywhere from 6 months to a couple of years. Even then, they may be able to break the lease with usually minor financial impact. As a homeowner with a mortgage, you can’t just break it early – unless you pay it off. Typically, this would be done with the sale of the home. The proceeds from the sale first go to paying off the mortgage on the home. However, before selling, you should live in the home for a few years to pay down your mortgage, build equity and recoup the money you spent on closing costs when purchasing the home. You’ll also need to live in the home for at least 2 years to avoid capital gains tax when they sell.
