Home ownership is traditionally seen as the gateway into middle class life. Once you own a property, you have officially arrived. A survey carried out by House Logic found that 51% of people living in rented homes were keen to buy, which is perfectly understandable given the uncertainty of life in the private rental sector. Unfortunately, whilst many people are desperate to own their own home, this is not always the right move for their current circumstances.
Mortgages for First Time Buyers
Most first time buyers need a mortgage to buy their first home. Home ownership is a huge financial commitment, and therefore not a decision to be taken lightly. Once you have a mortgage to your name, you are committed to making repayments every month, no matter what. Therefore, if you lose your job or money is a bit tight, you could be in trouble.
Living in rental accommodation is safer in this regard. Most landlords will give you a bit of leeway if you can’t make the rent payments for a month or two, especially if you have been a great tenant until now. Lenders are often less understanding and if you fall behind too far on your house repayments, they will foreclose on the debt and sell the property to settle the debt. The problem comes when the sale makes less than your outstanding mortgage, as you are then left with a debt and nothing to show for it. On the plus side, interest rates are historically low right now, so if you have a decent deposit saved up and you are confident your job is reasonably secure, now is a good time to buy.
A Smart Investment
Buying a home is a smart investment for two reasons. One, mortgage repayments are usually cheaper than rental payments, and whereas a landlord can hike the rent on a whim, you can easily fix mortgage repayments for up to five years. Secondly, properties appreciate over time, so that piece of Miami Beach real estate you have your eye on could double in value over the next ten years. Any capital gain you make when you eventually come to sell is money that can be used to fund the purchase of a larger property.
However, buying a home is only a smart investment if you can afford to meet the monthly repayments and buy a property in the right area. Say, for example, you buy a small home in a bad neighborhood. You might easily end up losing money on the purchase, and if you lose your job, too, it’s a double whammy.
Don’t overlook the cost of property maintenance. You will need to set aside money to pay for seasonal tasks such as HVAC servicing, insurance, etc.
Tread carefully before you buy your first home. You might not be ready to buy that home. Make sure you have saved up as much as possible for a down payment, as the larger the down payment, the smaller the mortgage. Consider your job prospects for the next few years, too, as you are more secure in a rental home if your job is on shaky ground.