If you talk to older family members or friends, then everyone seems to tell you to get on the property ladder. It’s almost seen as strange if you’re in your mid-twenties and don’t own a house. People always encourage you to buy one, but nobody ever divulges the reasons why.
Why should you buy a house? Is it even a smart financial decision? Why can’t you keep renting instead?
The simple fact is that investing in property is far from the dream everyone makes it out to be. Sure, in an ideal world, everyone will own a house. But we hardly live in an ideal world! The decision should be based on the individual in question. It’s not so much whether buying a house is good or bad, it’s more whether it’s the right financial decision for you.
To help you come to a conclusion, let’s take a look at some of the key considerations when buying a home for the first time:
Can you afford a mortgage?
Unless you’ve inherited a lot of money or got lucky and won the lottery, you will need a loan to buy a house. This comes in the form of a mortgage, and it gives you the cash you need to buy your dream home. With most personal loans, you apply for one and then pay it off in installments. A mortgage is slightly different in that you need a deposit beforehand. This tends to be around 10% of the value of the property you’re looking at.
Immediately, this throws up a financial conundrum: can you afford the deposit? If you can’t, then your dreams are shattered right away.
Still, if you can, you need to figure out if you can also afford all the mortgage repayments that will be due each month. A good way to do this is with a mortgage stress test, which figures out if you can afford your mortgage based on how much you earn. In some cases, you will find it very hard to make repayments and still have enough money in the bank to live comfortably. In others, you will see that you can easily pay for a mortgage and continue to afford other essential expenses as well.
Clearly, if you can’t quite afford the mortgage expenses, then buying a house is not a smart financial decision. Why put restrictions on your life just to own a house? It’s not worth it, so being able to properly handle the costs of a mortgage is essential.
Homeowners have to pay for all the repairs or improvements
Another thing to consider is the extra costs of owning a home. Sure, there’s home insurance, tax, and so on. But, we’re talking more about things like repairs or home improvements. When you buy a home, you inherit all the responsibilities for that home. If anything ever gets damaged, you will need to pay to have it repaired. Needless to say, this can add lots of additional costs to a home over the years. It also puts added stress on your life.
It’s not uncommon for people to buy a home and become increasingly paranoid about things going wrong. If there are leaks or structural issues, this can set you back hundreds, maybe even thousands of dollars. When you have mortgage payments on top of other expenses to think about, the last thing you need is some costly repairs.
This is a potential drawback of owning a home compared to renting one. When you rent, the landlord is the homeowner, and they have responsibility for it. If there are any repairs – that weren’t directly caused by you – the landlord pays for them. This can save you so much money and stress over the years.
The same goes for home improvements. If you want to upgrade your home, then you have to pay for everything. If you rent, then a landlord can make improvements as they see fit.
In essence, it becomes a question of freedom vs. financial responsibility. You get more freedom to do as you please when you own a house, but it required more financial responsibility from you. If you want to handle this, then go ahead and buy a house.
Renting never ends
It may seem like this whole article is trying to prove that you shouldn’t buy a house. That’s not the case, it’s just an attempt to look at the bigger picture. So, this next point will give food for thought in favor of owning a home.
Yes, the leading concern is whether or not you can afford your mortgage. It can take decades for you to fully pay for your home. This puts a lot of people off, even when they can technically afford a mortgage. But, there is one key factor: you own the house when the mortgage is paid, and you no longer have to make any payments. In essence, mortgage loans only exist until they’ve been paid for.
Compare this to renting, which will last forever. You will never reach a stage where your landlord says okay, you’ve been paying rent for long enough, let’s stop. Ponder this for a moment, what if you stayed in the same house or apartment for decades? You kept paying rent all that time, to the point where you eventually paid for the value of the home itself. Then, you keep paying rent. So, you’ve basically paid your landlords mortgage and continue to give them money afterward.
You can see how this scenario makes the idea of buying infinitely more attractive. As long as you can get a mortgage, then it does make more sense to buy a house. You’ll be paying monthly no matter what, but your mortgage will end while rent goes on forever.
Do you move around a lot?
Let’s face it, you’re at a stage in your life where you’re either settling down or just getting started. Your twenties and thirties are important stages where you learn a lot about yourself. If you’re planning on settling down and having a family, then owning a house can be a smart financial decision. You give your new family a place to stay, and you have an asset to hand down to your kids when they’re older.
On the other hand, what if you don’t plan on settling down for some time? If anything, you may have lofty career ambitions and will be willing to do whatever it takes to achieve them. This could mean that you’re moving around all the time and taking jobs in different cities or countries.
In this case, buying a house no longer seems like a 100% great financial idea. You spend all that money on a mortgage, only to leave the house within a year and move elsewhere. Now, you’ll have the mortgage to pay on top of rent for a new place somewhere else. You could try and rent out your home, but this isn’t as simple as it seems. Or, you can sell it, but that requires loads of effort and can take ages.
The simple fact is that it could be better for your finances if you stick to renting while you’re still moving around all the time. Why bother with such an intense financial committment if you’re not ready to make the most out of it?
Other investments are available
I think one of the key reasons people always feel obliged to invest in property is just to have some sort of investment. By all means, creating an investment portfolio is a key aspect of developing financial stability. If you’re reading this, then you should start investing as soon as you start earning money. It is one of the best things you can do for your finances!
The only issue is that people seem to think property is the be-all and end-all of investments. In reality, there are plenty of other investment options at your disposal. So, if you’re thinking about buying a house just because you need an investment, then perhaps review your situation. Investing in stocks and shares can be just as rewarding and requires nowhere near as much financial backing.
Conclusion: Should you buy a home?
So, here we are. After reading this, are you any closer to deciding whether or not to buy a home? If you’re looking at it from a financial perspective, then the main barrier is affordability. If you can’t afford a mortgage, then that instantly means you shouldn’t buy a home. But, even if you can barely afford one, then it’s not worth it as you put too much stress on the rest of your life.
Buying a home comes with some financial advantages, but that doesn’t mean you need to jump on the property ladder as early as possible. There’s no problem with renting a home until you’re ready to finally settle down, and have saved enough to afford a mortgage. Ask yourself, would you rather live comfortably in a rented property or have your own home but constantly be worried about money?