Home Ownership: You Own It Or It Owns You ?

With mortgage rates hitting an all-time low, is it a good time to buy a home? Tenants might have considered this in the past few months. Talking about numbers, mortgage on a loan of $400k @2.5% (current rates) for 30 years fixed is $1580 per month. The same mortgage at 3.5% equates to $1796. That itself is $77k less, paid in interests over the mortgage term, not to mention the $216 monthly savings.

Make Money Work for You

Additionally, the difference of $216 if added to the monthly mortgage as ‘extra payment’ saves $30k further in the interests paid and shaves off 5 years from the loan duration. Out of the total $19k paid in mortgage in the first year, nearly half of it is equity built. Mortgage interests and closing costs are tax deductible, hence we’re looking at potential tax savings too 💲💲. Although, I haven’t considered insurance and property taxes in the mortgage since that is different for every state.

Commitment

While the numbers encourage us to start browsing Zillow and Redfin for Open Houses right away, Home Ownership is a commitment. Much like other commitments a lot of us shy away from 😉😉. You’re no longer a phone call away from getting a toilet leak fixed or old refrigerator replaced by calling at the leasing office. Systems and Appliances require periodic maintenance. Buying the Home Warranty helps, however, be ready for multiple phone conversations with the associated company. At times, the assigned contractors aren’t experienced enough to diagnose correctly and you’re back on phone again. Few things, like whirlpool tub might not be covered in the Home Warranty. Not to mention the Service Call Fee charged during the initial visit is 60$-100$.

Home ownership for sure pops out your creative self.

As homeowners, you’re expected to roll up your sleeves for DIY skills, referring YouTube and other online resources. For major issues that even your talent can’t handle, you’ll consult contractors who charge by the hour. There goes another dent in your monthly savings. Like with everything, you’d like to shop around for best quotes. Sadly, not when you’re unlucky and the issue requires immediate attention. You’ll just pay premium price to the earliest available contractor and wish you were still renting.

It’s a Change…. a Big One.

Moving from an apartment/condo in downtown or in the city, to a Single-Family House in suburbs is a substantial change. Suburban life is a lot different than city life. In most cases, your commute to the workplace (city) will increase. Your work schedule gets tied up with the Train Schedule. You’ll no longer walk to the grocery store or the nearby park. Be ready for shoveling snow off your driveway in winters and mowing the lawn during summers.

Staying Put

It is important to evaluate your current situation before diving deep. Are you ready to stay in your current city for next few years? Home Ownership starts to pay off financially after 5 years. Are your professional ambitions matching up with the current job, or aligning in the same direction? For the least does your current city have good employers where you’d like to enhance your career?

In the short term (next 6 months) do you have specific goals you’d like to focus on like Changing your job, Spouse finishing off school, pregnant spouse, finishing off outstanding debts, maximize savings? All these require specific execution plans which might not overlap with your home ownership project.

Considering the time is right, you start going to open houses and schedule showings with your realtor to understand the type of houses available at certain prices. We all have our checklists: Recent construction, good schools, close to train stations. ‘Wow’ factor is important too which is tricky at times. For example, a backyard with a swimming pool shoots up the wow quotient as well as the recurring maintenance expenses 😕😕.

Affordability

Coming back to numbers, quantifying affordability is important. For the first time home buyers between 28–35 yrs of age, incomes and expenses, both grow reasonably fast as we move up our careers, side hustles, start a family, buy that second car graduating from a sedan to an SUV. Considering the offsetting income and expense growth in the following years, a 25–30% range of the post-tax income might be allocated for monthly mortgage including taxes and insurance. This provides a bandwidth to further invest in stocks, ETFs, rental properties, commodities to generate passive income and accumulate savings. We all have read about diversification already.

Great Motivator

Home ownership is like having your first newborn kid. Temporary noise that comes from the AC vent or the bathroom is like a well-fed toddler suddenly crying and eventually going off to sleep. Deciphering baby’s responses is no different than reading a circuit breaker panel with switches not labelled correctly. Every step is a learning process which strengthens the bond with your partner. Or does it? 😊 You’re highly motivated to perform well professionally and have a better reason to ensure you’re providing well for your kid and similarly making that mortgage payment. After all there aren’t many things to which you can point and say, It’s ‘Mine’.

We all strive for a beautiful house having a backyard (jackpot if it has a concrete fire pit) to socialize with friends, a driveway with a hula hoop for kids to play, a home theatre in the media room/basement. Is this the right time to buy ? It is for us to decide keeping all things into perspective.

This article is for informational purposes only; it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.