If you are interested in buying a house this 2022, you might want to put it on hold for a little while. Housing affordability is nearing the worst it has ever been, so this year may be the worst possible time you could consider purchasing a property.
The market demand has begun slipping, and we are now seeing a spectrum of higher interest rates. Considering the stock market disaster, impending recession, and the unpredictability of the skyrocketing interest rates, here are the reasons why you should not buy a home this 2022:
Don’t buy a house if you’re in a rush
Although owning a home can be undeniably rewarding, refrain from buying a house if you are in a rush to purchase any property as soon as possible. Since interest rates are going up, it’s probably going to be a big mistake, bringing you four major issues.
First, you might find it challenging to fund the maintenance of the property. A mortgage isn’t the only financial expenditure that you would handle. It doesn’t stop there. You also need to be responsible for insurance, property taxes, and repairs.
Second, there’s a chance that you’ll buy a home that’s not location-wise and lacks some important features. According to studies, bad location increases commute time, which could be very unbeneficial for you. There could be compromises when it comes to these things, but it could have been avoided in the first place if you only took a little more time planning.
Third, if you’re in a rush to buy a house, you’ll end up paying a higher mortgage. Take time to go around the different neighborhoods and do the utmost research to ensure that the rate you’re offered is the most competitive rate around.
Compare properties and their prices to find the best deal. If the property you are eying seems to be a bit high in price, work with a mortgage broker to bring down rates.
Fourth, you might make an expensively bad investment. A lot of people buy a house at the top of their price point, hitting the maximized amount they qualify for, without actually realizing the potential of owning a home. With the latter being said, people might buy a home that costs more than its appreciated value — a truly bad investment.
Don’t buy a house if you do not understand the cost of your money
If you are planning to buy a house, you need to make a lot of calculations. You must analyze the opportunity cost of your down payment. Basically, you need to understand how much your down payment would appreciate if invested in other vehicles. For instance, in cryptocurrency, stocks, or the Forex market.
Binding your money in a residence isn’t always the most profitable decision, even if it means you don’t need to fritter away your hard-earned money on rents.
It’s true that the likelihood of losing your money in one snap isn’t likely when it comes to property investing. However, there are things that should consider first before finally deciding to buy one. Ask yourself these questions:
- How long will I have this home?
- Did I take into account all the transaction costs, including commissions, transfer fees, taxes, and escrow charges?
- What is my total monthly cost if I add up property taxes, mortgage, repairs, and insurance fees?
- How much would it cost me to rent a comparable home?
- How much money do I have to spend on a downpayment? If I spend it on other investment vehicles, would I be able to make more, or is this truthfully the most profitable one?
You should be critical when it comes to buying a house. According to studies, about 75% of homeowners didn’t spend time pondering these questions. Thus, they didn’t realize sooner that buying a house wasn’t their best interest.
Of course, buying a home makes sense, but it doesn’t automatically mean that it’s the “best” and “right” thing to do. This is why it is necessary for everyone to realize the true cost of owning a home versus renting.
Ensure that you will be able to cover all costs of payments comfortably. If you think that the number makes sense, then go for it, knowing that you’re taking a calculated risk. But otherwise, it would be best to put your purchase on hold.
Don’t buy a house if your budget can only cover a mortgage
One of the biggest mistakes that people make is buying a house with a budget that can only cover the mortgage. Usually, this begins by comparing the cost of renting and the cost of owning a home while projecting that home values continuously ascend.
Renting might seem to be a waste of money at first glance, but if you look at things closely, you’re better off paying money to your landlord.
Aside from the mortgage, you need to pay property taxes, which costs about 2-4% of the property’s assessed value each year. If the value of the house is $400,000 and you have to pay a 1% tax rate, you will be spending $4,000 every year. Not to mention that the tax price would continue climbing over time.
You also need to pay for the insurance. The amount of this would vary depending on the location of the property and on the cost of replacing the house in case of a disaster. Generally, this would take about $100-$250 monthly for basic coverage, but it could be a lot higher if the house is located in a high-risk area.
There are also maintenance and repair costs, which are necessary to keep your home up and running. When budgeting for home maintenance and repair, the 1% rule of thumb might help you kick off in the right direction.
In the 1% rule of thumb, you need to budget at least 1% of the home’s purchase price for expenses in maintenance and repairs. Hence, if you buy a $500,000 worth of a home, you should allow a minimum of $5,000 for upkeeps. This could go up depending on the materials used in the house.
If you want to lower maintenance and repair costs, you should map out a plan to sustain the good initial condition of your home. For instance, replace your HVAC system filters immediately once you notice dirtiness, and keep a close eye on the foundation to see if there are any cracks or issues that are starting. Knowing the condition of the house will help in preventing further damage.
Even when the calculated mortgage payment seems low, if you add everything up, it costs you a lot more than you assumed.
Don’t buy a house if you don’t fully know the cost of buying one
In the past years, many people have been romanticizing buying a home, living there, and being able to sell it at a much higher price later on.
But there’s one thing that most people fail to ponder until they are already in the middle of the deal: Buying and selling a house is an expensive process.
The cost of buying and selling a house is about 4-7% of the home’s value. You need to pay for the inspection fee, escrow charges, and loan origination. Not to mention the other miscellaneous that you have to pay throughout the process, including notary fees, transfer taxes, filing fees, document charges, file certification, and a lot more.
So, be ready to spend about $3,000-$7,500 if you are buying a house worth $300,000. Keep in mind that the selling cost is significantly higher.
