Owning your own home is a quintessential part of the American Dream. It’s a haven, a space that is completely your own, offering stability and comfort for you and your family. If you have been dreaming about homeownership, you may be trying to determine if buying a home is a good investment.
People often buy homes when the timing is right in their lives; they’re mostly out of debt, they’ve saved for a down payment, they’ve built up their credit score, and they have a solid career. If you have the means, buying a home can be a great decision. For others, it may make sense to rent for a few more years to save and learn how to buy a house.
While houses are often seen as investments, they are different from stocks or mutual funds. Sure, you buy your home with the hope that the value increases over time, but it’s also an asset you use every day. And owning a home requires regular maintenance and unexpected costs.
If you’re wondering “Is buying a house a good investment?” you’ll have to do some personal reflection and take a look at your finances and future plans. There are a lot of factors to consider and only you can determine when you’re ready to buy. Here are six questions to consider when deciding if it’s time to buy a house.
Are You Willing to Own a Home for Five Years or More?
In order to determine if buying a home is a good investment for you, you’ll need to estimate the amount of time you plan to own the house.
If you don’t plan to own the house for at least three to five years, you may not break even when you sell the home. When you buy a home, you pay for more than just the house and those costs can add up.
You’re often paying for appraisals, mortgage application fees, inspections, movers, real estate agent fees, and that can add up to thousands of dollars. In order to offset all those fees, your home would generally have to appreciate by 15% to 20% prior to selling. It can be difficult to make those gains back in just three years. If you plan to live somewhere for less than five years, it could make the most sense to rent property.
Do You Have Sufficient Savings?
In order to buy a home, you’ll generally have to take out a mortgage to finance your purchase. Lenders will scrutinize your mortgage application, reviewing your credit report, employment history, and earnings to make sure you are able to make the monthly mortgage payments. Before you even get to that stage, you’ll have to save for a down payment and closing costs.
In addition to the initial cost of buying a home, there are continuing costs you’ll have to account for, such as home insurance, property taxes, general maintenance, and emergency home repairs. When you are renting, if the kitchen sink springs a leak, your landlord will take care of it.
But when you own a home, those repairs will be entirely your responsibility. Having an emergency fund saved up will help you deal with unexpected costs associated with homeownership.
One way to save for your down payment is to use a SoFi Invest account. At SoFi, you can begin investing with as little as $100 and you’ll gain access to a team of financial advisors who can work with you to establish your financial goals and create a plan to help you get there. If owning a home is your goal, investing with SoFi could help you get there.
Buy your next home with as little
as 10% down on loans up to $3 million.
Are You Confident in the Housing Market?
While the price of homes has continued to rise over the past 10 years, there has also been an increase in demand and a decrease in available housing . This can make it difficult for first-time homebuyers to find a suitable home that is in their price range. It’s important to be prepared as you start to look at homes. Understand your budget and make sure you have saved enough money to make a solid down payment on the property.
Are You Ready for the Responsibility?
When you own your own home, you have a lot of freedom to make the space completely your own. With all of this flexibility comes a lot of responsibility. If the house has a yard, you’ll be responsible for regular maintenance and upkeep.
Will you need to buy a lawn mower? If you live in an area with harsh winters, will you need to get a snow blower or hire someone to clear the driveway after each snow storm? If the roof starts to leak, you’ll have to fix it or hire someone to complete the repairs.
Make sure you are ready for the financial responsibility that comes with owning a home before you make the purchase. You’ll have to account for repairs, improvements, general upkeep, insurance, and taxes.
Are You Willing to Live with a Long-Term Loan?
Part of the process of learning how to buy a house is educating yourself on how mortgages work and the different types available. Generally, there are two types: fixed rate and adjustable-rate mortgages.
A fixed-rate mortgage keeps your payment level over time, typically 15 or 30 years, because the interest rate remains stable. The interest rate on a flexible-rate mortgage fluctuates over time. They usually start out lower than a fixed-rate loan, but often rise in later years. To see what a mortgage could mean for you, take a look at SoFi’s mortgage calculator.
While it may seem daunting to take on a 30-year obligation, a mortgage helps you build equity in an asset that generally increases in value as time passes. Is a house a good investment? Historically, yes, if you think long term.
Over the years, homeowners build up equity in the house as they methodically pay off more and more principal with each loan payment. Many smart borrowers pay extra each month toward the principal to pay off the mortgage sooner.
Ready to Buy? Consider a SoFi Mortgage
When you’re ready to take the next steps in your home-buying journey, consider taking out a SoFi mortgage loan. SoFi offers both adjustable-rate and fixed-rate mortgages, so you can choose the option that works best for you.
Applying for a loan with SoFi is easy—we offer pre-qualification online in under two minutes. Plus, there are no hidden fees.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.