One of the biggest financial decisions you will have to make in your life will be buying a house. Most people own three homes during thier lifetimes with the average first home purchased at the age of 27. Their second home is usually purchased about 5 years later as their family grows. And the final move generally comes around retirement or becoming an empty nester.
But rushing into buying a house can be a disastrous financial decision for you. Unfortunately, there are still some people that are not completely aware of just how much buying a house changes your financial status, your savings, and your credit. We found this topic worthy of exploring and decided to help anyone wondering if buying a house is a good idea for them.
Buying a House Burdens You with a Mortgage
The biggest impact of buying a house on your finances is the mortgage. Of course, how your mortgage will affect you depends on how high it is. If it compares favorably to your previous rent payment you may not notice much impact on your overall finances, but if you are stretching to meet the mortgage it could cause problems because a mortgage is a long-term contract.
One advantage of a mortgage over rent is that rent often increases but a fixed rate mortgage locks in your payment, so inflation is actually a benefit, as you get to pay your mortgage with “cheaper dollars”.
A mortgage is also a form of “forced savings” because rather than your entire monthly payment going to the landlord, a portion goes to the bank and a portion goes toward building your equity.
Maintenance Costs
When you own a home, you have many more responsibilities than when you are simply a renter. And those responsibilities are costly. When you rent, you pay your bills; for everything else, you call the landlord to come and fix it. But when you buy a house, all that is your job now. Any issue with plumbing or electricity that comes up, you have to fix it or pay someone else to fix it. This includes paint jobs, minor fixes, and replacing broken items and devices. Then there is your house exterior and all the necessary maintenance, such as lawn maintenance. All of this, plus the monthly mortgage, can put a strain on your finances and makes you feel stressed and anxious. So, you should keep this in mind and plan for it when committing to buying a house.
Don’t Forget the Moving Expenses
Your finances will also be affected by the amount of money you will need for the moving process. This can become a significant burden on your budget if you are making a long-distance move. Just consider everything you need to do before moving day and think about the details like prepping, packing, paying for good movers, and in some cases, even renting storage. Hiring a good moving company that specializes in long distance moves can be pricey. This is something you will also need to budget for when considering buying a house.
But considering that the average person only owns three houses moving costs are limited compared to moving every few years as a renter.
Be Prepared For A Change in Your Credit Score
Another way buying a house affects your finances is reflected in your credit score. Naturally, in order to buy a house in the first place, you work really hard to make sure your credit is good enough to get the necessary loan. But what most people aren’t prepared for is the sudden drop your credit score takes after making such a big purchase. According to a study, the average drop in a credit score after getting a mortgage is 15 points. So just know that this is completely normal, and you haven’t done anything wrong. The good news is that your credit score will recover slowly but steadily. Getting your credit score back up will take the same amount of time it took for it to drop down. But if you are irregular with your mortgage payments, your credit score could be adversely affected, so be sure to make those payments on time.
You May Have to Start Budgeting
If this is the first home you have ever bought, it probably means you are still relatively young and haven’t spent that much time budgeting and being responsible with your money. But since you managed to get that loan to buy a house, it means you are on a good road. When you buy a home, you will have to kick those budgeting skills into high gear. To have enough money to make your mortgage payments on time and to pay all the utility bills, upkeep, maintenance taxes, and all the other expenses, you will have to be smarter with your money. Money might be tight in the first few months, so cutting back on some expenses would be a good idea. You can find a lot of money-saving tips online that can help you go through this period.
In Conclusion
Buying a house affects your finances in many ways, but that is not a reason to not commit to owning a home. This is a big decision, and feeling anxious and stressed about it is completely normal. That is actually good because it will make you more cautious, and you will be less likely to make a rash decision. When you become a homeowner, you get extra bills to pay and a lot more responsibility, not to mention how big of burden mortgage payments can be. But you should always remember that it will all absolutely pay off in the long run.
