key chain with house key and metal house
Don't buy a home, until you check these 5 boxes

Buying a home? You crazy? Of course not. But it takes more than a down payment and a mortgage to become a homeowner. Check the 5 boxes below before pulling the trigger:

  1. [   ] I want to be a homeowner! - You've dreamed of having a place you call home. You can remodel how you want, and you own the place! You are happy to take on repair/upkeep costs and give up emailing the landlord when something breaks. 
  2. [   ] I'm not moving in the next 7+ years - Think of your job, the city you live in, your family plans, what would you do if you had to get another job. If you think you could manage the best and the worst in your current city, then you should be fine. The reason why you need to stick around for a while is the fees of buying a home are large (discussed in 5.). In order to spread those fixed costs out over many years, you need to stay in that same house for many years. Simple. 
  3. [   ] I accept the opportunity cost - If you are young, you probably could get a much better return by investing in stocks for the next 30 years. But unless you are an AI robot, you can't exactly live in a stock certificate. Also the cost of renting may be expensive if you are in a big urban hub like NYC or San Francisco.
  4. [   ] I accept it's not a great investment decision - Let's be honest, no sound financial advisor would tell you to take all your savings + a loan for 4x your savings, and stuff all of your cash into one item. But that is exactly what most homeowners do. Of course you get rewarded if housing prices go up. You make a return on your money + the money the bank lets you borrow. But if housing prices go down like in 2007-09, it can be quite painful. 
  5. [   ] I understand all the fees - Saving the ugly for last. There are lots of fees in home buying. While the seller usually pays more of the fees in a transaction, the buyer still has plenty to handle. Think of the following package as replacing that monthly rent bill you are currently paying:
  • Recurring Costs - happen every year as homeowner
    • Mortgage Principal + Interest to Lender (you can write off the interest portion on your taxes though)
    • Property Tax to Local Government
    • Insurance Costs to Insurance Company (compare)
    • Upkeep/Maintenance Costs to Contractors/Handymen
    • Utility Fees to City Government, ConEd, Excel, etc (water, gas, power, TV, internet)
    • HOA Fees to Home Owners Association (for condo, gated communities, etc)
    • Opportunity Costs to You (where else could you invest those dollars...)
  • Purchase Costs - happen when you buy a home
    • Broker Fees to Real Estate Agent (usually 0-4% of home value)
    • Origination Fees to Lender
    • Title Search Fee to Title Insurance Company (verify the boundaries of your plot of land, they own it, no liens)
    • Notary Fees to Notary
    • Credit Report Fees to Credit Agencies
    • Application Fee to Lender
    • Appraisal Fee to Lender
    • Upfront Mortgage Insurance to Lender (if putting less than 20% down)
    • Home Inspection Fee to Home Inspector (could be separate inspectors for Pest, Lead Paint, Mold, Flood Inspection, Radon, etc)
    • Attorney Fee to Real Estate Attorney  (optional)
    • Furnishing Costs/Upgrade to Stores (might come with a kitchen, or maybe not. You might need to landscape the back yard.)
    • Moving Costs to Moving Company
  • Sales Costs - happen when you sell a home
    • Broker Fees to Real Estate Agent (usually 4-8% of home value)
    • Closing/Escrow Fees to Escrow Company
    • Transfer Tax to Local Government
    • State Recording Fees to Local Recording Office
    • Home Repairs/Updates to Contractors/Handymen (make it shine for a sale!)
    • Attorney Fee to Real Estate Attorney  (optional)
    • Home Warranty to Insurance Company (optional -protects against appliance breakdowns in first year for the new buyer)
    • Capital Gains Tax to Government (if your gains are larger than $250,000 if single, or $500,000 if married - you can subtract closing costs from your gains.)

A bit sick to your stomach? Don't be. You are prepping yourself now, so there are less surprises down the road. Owning a home can be a truly liberating experience. No one to tell you that you can't paint the bathroom orange or build a game room in the basement.

Finally, everyone loves a calculator. So here is a link to the best Home vs Rent calculator I could find. You can play around with a lot of assumptions and see what makes sense from a financial perspective.

I can only give you boxes to check, but you must decide which box to buy. See what I did there? Honestly though, if you got this far, got 5 checked boxes, and are still excited to buy a home then you are ready! Good luck and go get 'em!

At your service,
Young Alfred