Here are five of the most common risks associated with buying a home:
- House price risk (up or down): what if the house goes down in value? That’s why it’s important to evaluate mortgage, cash flow and debt planning strategies that won’t put you in a bind if house prices stagnate or go down a little bit. On the other hand, what if the house goes up in value and you haven’t pulled the trigger yet? That’s why it’s important to get yourself a solid mortgage approval BEFORE you go house shopping, and be prepared to act quickly if you find what you’re looking for.
- High costs of sale (8% +): do you realize that you’d have to sell the house for at least 8% – 10% more than what you paid for it just to break even and cover the real estate commissions and transfer taxes? That’s why it’s important to make sure that buying this home is part of a longer-term strategy.
- Improvements, Utilities & Maintenance Costs: have you considered the costs of improvements, utilities and ongoing maintenance expenses? That’s why it’s important to:
- Get your home properly inspected before the closing
- Investigate the cost of utilities, and make sure to budget for them
- Budget 1%-2% of the home’s value for annual maintenance expenses
- Opportunity cost: what rate of return could you have earned in a different investment with the funds you are spending on your down payment? That’s why it’s important to perform a buy vs. rent analysis and run the numbers for your specific situation.
- Long-term Commitment + Changing Cash Flow Needs: how does this decision impact your family’s college funding, retirement planning or elder care funding strategy? That’s why it’s important to consider mortgage strategies that take into account your changing cash flow needs.
The mortgage is most likely going to be your single-largest debt; and your home is most likely going to be your single largest investment. That’s why it’s important to work with a qualified real estate professional and a Certified Mortgage Planning Specialist. Together, we can help you consider these risks and compare your options. Contact me so we can get started!