Adding up the costs. Many experts recommend buying only if you expect to park yourself there for at least five to seven years. What if you like your city and current situation but also have no idea where life will take you in the next five to seven years? Sometimes, “the most you can say is ‘I plan to stay in the same spot, knowing everything about my circumstances, career and family today,'” says Jeff Tucker, an economist at home-price site Zillow.com.AdvertisementAdvertisement – Article continues belowhttps://814e3e0f68d0cd107bec8d30fac15466.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
An online rent-or-buy calculator, such as those from SmartAsset.com or Zillow, can run some quick calculations after you enter your location, rent, target home price, size of down payment and other factors.
Don’t underestimate other costs associated with buying a home. Closing costs, including the appraisal fee and loan origination fee, typically cost 2% to 5% of the purchase price of the home. Increases in ongoing expenses such as property taxes can blindside new homeowners, says Nelson.
Eric Simonson, a CFP and owner of Abundo Wealth in Minneapolis, advises clients to plan on spending 1% of the home’s value each year for maintenance and upkeep. Finally, if you put less than 20% down, you’ll need to sink even more money into private mortgage insurance.
When Simonson speaks with clients who want to buy a home, he asks them how much they pay in rent and pulls up several properties where they would pay the equivalent after factoring in monthly mortgage payments, taxes, insurance and upkeep. “More often than not, they find they aren’t getting such a bad deal renting, especially if they live in areas where the cost to purchase is very high,” he says.