Two budget angles to consider before you purchase a home

is renting smarter than buying?

There are conflicting opinions out there about whether it’s smarter to buy or to rent a home. The short answer to this is that it depends on your circumstances: how long you plan to live in that house, what shape the housing market is in and where you are buying.

When you rent, you do not get a tax deduction, and you do not build equity. The plus side is that you are not responsible for property tax or maintenance.

When you buy with a mortgage, you pay the bank back the principal and interest on the loan. This allows you to build “equity” in the home. This can be lucrative if the value of your home goes up, and is commonly believed to be a safe long term investment. In addition, most of us are eligible to receive a tax deduction on the mortgage interest that we pay. It’s one of very few tax deductions for middle class families.

unforeseen costs

When buying your first home, no one tells you how expensive it can be to be a home owner. One thing that many first time home owners don’t research enough is the hidden cost of home ownership.

The basic cost of home ownership is PITI (principal, interest, taxes and insurance). There are several online calculators available to help you calculate PITI:

https://www.bankrate.com/calculators/mortgages/mortgage-payment-calculator.aspx

But the costs go beyond that. After you’ve received the keys, you will start thinking about upkeep, maintenance and upgrades and this is when the real hidden costs start accumulating. In order to avoid getting in over your head, anticipate these costs and then go back and budget for your house accordingly. You need to love where you live, no be worried about making the payments. 

https://www.zillow.com/research/hidden-costs-of-homeownership-16072/

https://www.investopedia.com/articles/mortgages-real-estate/09/are-you-ready-to-own.asp