Buzz
Houses aren’t typically inexpensive, so if you’re in the market for one, it's important to make informed decisions. Usually, the longer you plan to own the home, the more advantageous it becomes. Personal finance blog MoneyNing discusses why, recommending the 'five-year rule' in the process.
Although most people opt for a 30-year mortgage, few actually stay in their homes for that long. Often, people move much sooner, and if you only live in your home for a few years, you could end up losing money. MoneyNing explains:
When buying a house, the general advice is to ensure that you plan to stay for at least five years. If not, you're likely to experience a financial setback.
The first financial setback is your closing costs. Each time you go through closing—whether buying or selling—money is spent. The amounts vary based on your location, but everyone involved pays something. These expenses can easily add up to thousands of dollars, so limiting how often you incur these costs is always a smart strategy.
You also face a second setback when reviewing your mortgage statement and seeing where your monthly payments are going. Mortgages are structured so that you pay a lot more in interest during the early years of homeownership. Typically, it’s not until you’ve been paying down your mortgage for about five years that you’ve made enough headway on the principal to make it a more worthwhile investment than paying rent each month.
Depending on your location and the specifics of your home purchase, results may vary, but that estimate is generally accurate. This calculator can help you determine how long you need to stay in your home before it becomes a better deal than renting. Flipping houses is a different situation altogether, as it requires investing tens of thousands of dollars into the property to significantly increase its value and (hopefully) sell it for much more than what you paid for it.
Again, results may differ slightly, but overall, this is a solid guideline for first-time homebuyers. For further details, take a look at the full post.
Photo by daryl_mitchell.
