Trying to weigh the risks of buying a home is like evaluating the risk/reward of any other major investment. But perhaps more so than with other investments, it’s hard to keep your emotions out of it.
- Determine the costs of home ownership (down payment, mortgage payments, insurance, real estate taxes).
- Analyze your income relative to the monthly expenses of owning a home. If you’re dependent on two incomes to maintain and pay for the house, analyze what would happen if one income were lost.
- Analyze the tax benefits of ownership versus the cost of renting.
- Consider why you’re buying the house. If your reasons are strictly emotional (“I want my own place”), you may not be able to justify the financial burden.
- If you’ll be financially strapped to make ends meet buying a particular house, examine if you’re overbuying (paying too much for a house given your financial situation).
- Don’t buy a house just because other people (peers, parents, co-workers) say you’re supposed to. They don’t have to live with the payments – you do.
Don’t assume you can cut your living costs to the bone to afford a house. You can eat only so much macaroni and cheese.