Looking forward to a future as a homeowner feels a bit like looking in a cloudy mirror. You can see yourself there, but everything else (like the how, when and why) just seems a bit fuzzy. But I'm here to tell you from the other side of the looking glass: You can do it!
It's been one year since my husband and I closed on our little slice of heaven (heaven, in this case, is a former pickle factory), and I'm here with lessons learned from the other side. Here are a few things I wish I could go back in time and tell my rental self.
Mortgage Calculators Can Be Misleading
Most real estate websites have an estimated mortgage amount on every listing page, and if you're comparing that number apples-to-apples with your current rent, you're doing yourself a disservice. That monthly payment is only part of what you're on the hook for, monthly, when you own a home. The rest is insurance and taxes, mostly, but it adds up quicker than you can imagine. I broke down my mortgage payment in real numbers right here to give you a sense of what your monthly housing costs really look like when you own a home. The folks at Zillow also recently released a great tool called All-In Monthly Pricing, showing you more realistic monthly numbers on the listings at realestate.com.
It Costs Money Just to Buy a Home
"Duh," I know. Before you roll your eyes too hard, hear me out. Even once you figure out (with the help of a mortgage calculator) exactly how much home you can afford based on your down payment and monthly income, there is still more to pay. Beyond the cost of the home (that is, your down payment plus 30 years of mortgage payments), the actual buying process itself is going to cost you money—anywhere from 2 to 5 percent of the purchase price of the home.
These extra expenses are referred to with a rolled-up term "closing costs," but you'll likely pay out parts of your closing costs a few different times during the home-buying process. Early on in our search, we paid an application fee to our lender. Then once we were under contract, we paid a few hundred to have the home inspected and appraised. Then, of course, there came a big 4-figure "closing costs" payment at our actual closing, which covered expenses like an attorney's fee, title fee, origination fee (that's the fee you pay to your lender for their work) and prepaid interest, among other things. All of those expenses, from the application fee to the costs at closing, are one-time costs that don't have any affect on the equity of your investment (so they're getting "thrown away," so to speak, although any mortgage interest and real estate taxes you pay can be deducted from your income when you file your return at the end of the year).
When you're considering whether it's better to rent or buy where you live, you absolutely need to factor closing costs into the equation, especially if you think you might move in the next few years—factor the one-time expense of several thousand dollars of closing costs into the financial plan.
You Can't Afford to Not Save for Emergencies
We bought a place in an old industrial building from the 1950s, which was converted into residential lofts in 1997. Not a new build, but not an old home either by many calculations, and lots of it had been updated right before we moved in. Still, things can (and did) go wrong. One year in, we've had to pony up for a few unexpected expenses, like a new washing machine (the old one flooded our laundry area one day) and removing the carpet and refinishing the floors in our living area (the below-grade wall sprung a leak during some heavy rain—we're having very bad luck with water apparently).
Your mileage will certainly vary, and I would be remiss not to mention that we had help from our homeowners association and insurance when the latter event happened, but it still cost us some money and the main point still stands: Things can and will go wrong, and you ought to make sure you have some emergency money saved up to handle it. You're taking a massive risk if your plan includes emptying your savings accounts for closing day.
You Might Shop Differently From Now On
I wanted to mention this last lesson because it has been probably the most unexpected change from my transition from renter to homeowner. When it comes to shopping for furniture and decor, there have been some shifts in my attitude and budget. For one, I find myself spending more on single items than I ever would have before. We needed a set of privacy shades for our (apparently strangely-shaped) street-facing French doors, and invested in a pair of custom treatments that cost more than anything in our former thrifted-together apartment. But it felt like a worthwhile expense. These shades were going to become an important part of our home—a home we hope to stay in for many, many years—so the relatively high cost made sense.
I find that my "it's an investment" attitude is spreading to other purchases we consider, like our new living room rug (the conclusion to the wall leak fiasco) and the splurgy entryway table I still have my eye on. When I was renting, everything felt so transient. Spending nearly half a paycheck on a table was a waste when I knew we'd want to buy one day soon—who knows if we would even have a place for it in that future home? But now, being settled for a year in our cozy little loft, I finally feel like I can start to build the home of my dreams. And it's been worth every penny.