Buying a house is the American dream, right? It can be a dream fulfilled and a good investment. But it can also be a financial disaster and a long-term burden. For some people, buying and owning a house just doesn’t make financial sense. So before you commit to 30 years of house payments, take a look at these 5 questions to ask yourself before buying a house in Sacramento.
1. Am I Buying a House in Sacramento for the Right Reasons?
The first step is to determine exactly why you’re buying a house in Sacramento. Some people buy a house for the tax benefits and to plant roots. Others, however, do so just because they think that’s what is expected of them, and for them renting might be a better option. For example, a house isn’t necessarily an investment because it won’t appreciate in every case and there will be expenses as well. So before you sign the contract, you need to make sure you’re buying a house for the right reasons.
2. Will Expenses Be More Than 30% of My Net Income?
The mortgage payment is far from the only expense involved in buying a house in Sacramento. You also have to factor in maintenance and repairs, insurance, property taxes, and so on. And if these expenses come to more than 30% of your net income (take-home pay), then you may not be able to afford the house. Estimates are that 39 million Americans can’t really afford their houses. And that’s usually because they didn’t take into account those other expenses when figuring that 30%.
3. Can I Really Afford to Put 20% Down?
If you want to avoid the extra expense of private mortgage insurance (PMI), then the standard down payment for buying a home in Sacramento is 20% of the house’s price – a pretty big chunk of money. Paying 20% down let’s you avoid having to pay the extra expense of PMI, which can be as high as 1% of the mortgage. Suppose, for example, you’re borrowing money to buy a $300,000 a house. If you don’t pay 20% down – that is, $60,000 – then you’ll have to pay an additional $3,000 a year for PMI. So . . . can you really afford 20% down to save money?
4. Do I Have Enough Emergency Cash?
Further, when buying a house in Sacramento, you need to keep plenty of extra cash on hand for all those inevitable emergencies. Owning a house carries with it expenses for repairs that come up – things like a leaking roof or a broken furnace. You simply can’t let these emergencies catch you off guard financially. Financial experts recommend that you have strong emergency fund before buying a house – ideally, one that will cover at least six months’ living expenses. If you don’t, then maybe you shouldn’t buy that house.
5. Will I Live Here Three to Five Years?
Don’t forget that the actual process of buying a house in Sacramento has certain costs, not least of which are the closing costs, typically 2% to 5% of the purchase price. So that same $300,000 house could cost up to $15,000 at closing. And if you don’t live in the house very long and have to sell soon, you will actually lose money because there hasn’t been enough time recoup the closing costs by appreciation. So, it’s recommended that you live in a house a minimum of three to five years.
Buying a house in Sacramento is the fulfillment of a long-held dream for some people, but for others, it’s just not a good idea financially. So before you take that big step, ask yourself these questions. Then if, after answering, you find that traditional house buying isn’t for you, we can offer other options. Just call us today at (916) 949-6929!