Mortgage Basics: The Big Picture
By Lisa Smith
Buying a home involves more than just getting a loan and making a payment. Financial issues aside, there is a tremendous mental satisfaction to be had from having a castle of your own. It's an opportunity to create an environment that is as unique as your personality. Whether it's a farmhouse in the country, a sprawling ranch in the suburbs, or a condominium in the heart of the city, you can create a space the fits your personality and enhances your lifestyle.
From a financial perspective, homeownership is a wealth builder, and home equity is often an individual's single largest source of wealth. Not only can the value of a home be unlocked when the home is sold, but real estate generally increases in value over time. Of course, owning a castle comes with its own substantial set of challenges. Time and money are two of the biggest.
Maintenance and Repair
For all but the wealthiest among us, maintaining a home requires a tremendous investment of time. Unless you can afford to hire a landscaper, a handyman and a maid, the move from renter to owner means that you have become your own landlord.
Consider the tasks that a homeowner needs to take care of: Decks need to be stained, flowerbeds need to be mulched, grass needs to be cut, bushes need to be trimmed and driveways need to be maintained. Likewise, every room in the house needs to cleaned, light bulbs need to be changed, insects and pests need to be repelled or removed, and broken items need to be repaired or replaced. Not only does each of these tasks require frequent contributions of time, many of them also require substantial contributions of money.
Unfortunately, the monetary requirements start early and never really stop. Paying a mover is likely to be your first expense. Putting curtains on the windows and decorations on the walls also comes with a cost. Buying a lawnmower, a rake, and a snow shovel are also on the agenda. If you don't have a garage, and sometimes even if you do, buying a shed to store your new tools may be on your list as well. Similarly, furnishing your new home can be an expensive proposition, and the bigger the house the more furniture required. The futon that looked so cute in your apartment may look lonely and lost in that new McMansion. Replacing your tiny television with a home entertainment system will also set you back more than just a couple of dollars. (For related reading, see McMansion: A Closer Look At The Big House Trend.)
When adding up the costs of homeownership, keep in mind that everything new eventually gets old. Roofs will some day need to be replaced, furnaces go bad, kitchens go out of style, carpet wears out, hardwood floors need to be refinished, siding needs to replaced, brick needs to be repointed, and hot water tanks leak. While these items don't occur on a regular basis, when they do come up, they cost a lot of money.
Paying off the house, which often takes a full thirty years to accomplish, only brings partial financial relief. While you won't owe anything more to the bank, real estate taxes will still take a chunk out of your paycheck. For this reason, you should pay careful attention to the tax millage rate when you are looking for new place to live.
Location, Location, Location
If you are financially prepared to address the challenges of homeownership, you'll also want to put some thought into the old mantra "location, location, location". Choosing where you are going to live should be done with care. That beautiful countryside lot that you envision could one day have a parking lot built next door. The nice people across the street could move away and be replaced by less-than-friendly new neighbors. Prisons, cell phone towers, industrial complexes, sewage treatment plants and highways get built in somebody's back yard. It could be yours.
When you are renting, it's easy enough to pack up and go someplace else if the neighborhood changes in a way that is not to your liking. When you own, you need to sell before you can leave, and selling can be costly. Everything from paying a realtor and making changes to bring your property up to par with local zoning codes to updating the property in order to make it more appealing to potential buyers could be on the menu. If the unpleasant development that is making you contemplate relocation causes your property value to fall, moving could be a costly venture indeed. (To read more about selling your home, read Need Retirement Income? Sell Your House!)
Mortgage Basics: How To Get A Mortgage
Although there are many challenges and potential pitfalls to homeownership, millions of happy homeowners have taken the plunge. While there is certainly a lot of work that comes with owning a house, consider taking a drive on a sunny Saturday morning, and you'll see that in neighborhoods across the country, happy homeowners are planting flowers, working in gardens, painting garage doors and showing pride and satisfaction in doing all of the little things that transform a house into a home.
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