Is Purchasing a Home a Good Investment?

Breaking Down the Real Costs of Purchasing a Home

You’re finally ready to move up from your rental unit to your own home. Before you start searching for a home, understand how much money you’ll really need. Be prepared for the myriad expenses that you must add to the purchase price to see the whole picture.

Home ownership has several advantages over renting, including lower monthly payments, deductible mortgage interest, and the accumulation of equity. But there is a definite price to pay for these benefits, including the expenses we detail here.

• Owning a Home Has Financial Advantages, but Comes with Significant Costs
  While owning a home can be financially beneficial in the long term due to lower monthly payments compared to rent, mortgage interest deductions, and equity accumulation, there are substantial upfront and ongoing costs to consider. Buyers should be aware that these expenses extend far beyond the initial purchase price.
• Upfront Costs Include Earnest Money and Down Payment
  The two primary initial expenses are earnest money, which shows your commitment to buying the home, and a down payment that ranges between 3.5% and 20% of the purchase price. The mortgage will cover the rest of the cost, but buyers must be financially prepared for these substantial upfront payments.
• Numerous Fees Add Up Quickly
  Buyers must anticipate a variety of fees associated with purchasing a home, such as broker fees (up to 3%), mortgage origination fees (around 1%), inspection fees, and more. Prepaid interest, title company fees, and potential homeowner association fees are also common. All these extra charges can significantly increase the total cost of purchasing a home.
• Insurance and Taxes Are Unavoidable Ongoing Costs
  Homeowners are required to purchase insurance, including homeowners and potentially flood insurance, depending on the location. Additionally, private mortgage insurance (PMI) is often required if the down payment is less than 20%. Property taxes also factor in as another major, recurring expense.
• Move-in Costs and Immediate Repairs Can Be Costly
  Moving costs and unexpected repairs can add thousands of dollars to the expense of buying a home. Structural repairs, replacing systems like HVAC, or even expanding the home can incur major costs, which may not always be identified during the inspection phase. Planning for these potential costs is crucial.
• Financial Planning Is Essential Before Buying
  The article emphasizes the importance of having a solid financial plan before making the commitment to buy a home. It’s essential to know how much home you can afford while still being able to save for retirement and other major life expenses. Proper financial preparation will help ensure that buyers don’t overextend themselves.