Disadvantages of Owning a Home

It’s the American Dream to own a home, but it may not be all that it’s cracked up to be. There are certain downsides that you should consider before you take the plunge.

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This isn’t to say that owning a home is necessarily bad. There are good sides to it. But being able to know the bad alongside the good can help you make the right decision.

Keep reading to learn the downsides of owning a home to see how they pertain to you.

You are in it for the Long-Term

Sure, you could turn around and sell your home shortly after buying it, but it certainly wouldn’t be a good financial move. Considering the closing costs you paid and the amount you borrowed, you will likely be upside down on the transaction if you move too soon.

You need to give the home time to appreciate. You also need to have time to pay the principal balance down. During the first few years of your mortgage term, you will likely pay mostly interest on your mortgage payments. It takes several years before you really start hitting the principal.

Because selling a home costs money too, you could find that you owe money at the closing rather than walking away with money in your hand. That’s why it makes more sense to stick with homeownership for at least a few years so you don’t end up upside down.

You are Responsible for All Maintenance Costs

When you rent a home and something breaks, you pick up the phone and call the landlord. When you own the home, there’s no one to call except yourself. On average, you can expect homeownership to cost you 1% of the home’s purchase price per year. If your home is worth $300,000, you would likely pay $3,000 in maintenance costs.

You also need to be prepared for emergencies. If your hot water heater breaks or your furnace busts in the dead of winter, you may need a few thousand dollars to make the repairs. Do you have an emergency account saved up for situations such as this? If you don’t, you could face financial issues. Do you pay your mortgage or fix the issue? Do you rack up credit card debt that you can’t afford? These are questions you have to ask yourself. If you think an emergency will put you in the ‘poor house,’ it’s time to rethink your decision to buy a house.

Real Estate Taxes can be Expensive

When you rent, you don’t even know about the real estate taxes. Even if you do know about them, you don’t pay them. The person that owns the home is responsible for this payment.

When you buy a home, you are that person that owns the home. This means you are responsible for paying the taxes twice a year. Each county has different dates that taxes become due and payable. You may be able to choose to pay them on your own or set up an escrow account with your mortgage company.

If you set up an escrow account, you’ll pay 1/12th of the total real estate taxes each month. This way when the due dates roll around, there’s enough money in the account for the mortgage company to pay your taxes on your behalf. If you don’t set up the escrow account, you have to be good about saving the money each month so that you can pay the taxes when they are due.

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If you don’t pay your real estate taxes, they can become a lien on your home. This lien may supersede the first mortgage position on your title. This means the mortgage company could lose money should the county take possession of the home. Your real estate taxes are very important to pay on time.

You Take the Liability Should Anything Happen

If you have a mortgage on your property, you have to have homeowner’s insurance. Even with homeowner’s insurance, though, you still have liability if something happens. Each insurance policy is different, but they all have a deductible and sometimes even a co-insurance amount.

This means if disaster strikes and your home is destroyed, you must pay up to the deductible amount before the insurance becomes effective. Even then, you may be liable for a portion of the charges, whether you have co-insurance or there are things that the insurance company won’t cover.

You Have to Come up With the Down Payment

Most loan programs require you to put some amount of money down on the home. There are the few select programs, such as the VA and USDA programs that offer 100% financing, but only certain borrowers will qualify for those programs.

If you do have to put money down on the home, it may take a while to save up for it, especially if you are renting and have other bills. The good news is that you may be able to accept gift funds for a portion of your down payment (in the case of the FHA loan, the entire down payment may be a gift).

You Have to Cover the Closing Costs on the Loan

In addition to the down payment, you have to cover the closing costs on the loan. Closing costs usually cost between 3% and 5% of the loan amount. So if you borrow $200,000, you will pay between $6,000 and $10,000 in closing costs. This is in addition to your down payment.

This could mean that you’ll need a significant amount of money saved in order for you to become a homeowner. While there are ways to get assistance in certain situations, you’ll need to prepare yourself for the large expenses.

Owning a home has its upsides, but it definitely has its downsides too. Mostly, it costs a lot more money to own home, at least initially. If you aren’t prepared for what owning a home entails, it could leave you in financial distress, taking away the benefits of owning a home.

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