Short-Term Homeownership Is Not Evil
NEW YORK ( MainStreet) During the worst of the housing crisis, experts warned against buying a home if you didn't expect to stay put for seven, eight, even ten years. To use the traditional guideline of three to four years was to court disaster if you needed to sell and prices had fallen.
Are things better now? Overall, they appear to be. Home prices have gone up about 12% in the past year, making it easier to break even or even show a profit after owning a home for only a year or so. And factors that could force an early sale, such as heavy layoffs, have eased.
But with millions of homeowners still owing more than their homes are worth , it makes sense to remember that things can go wrong. It probably would not be wise to buy if you were certain you'd have to sell in two or three years. But if you really expect to stick around for at least four or five, the risk might be worthwhile, especially if you followed a handful of strategies for building equity quickly.
The traditional recommendation of a minimum four- or five-year ownership assumes you need that long for the home's value to rise enough to offset costs of buying and selling, such as 6% broker's commission, transfer taxes, loan application fees and legal fees. If the home gained 3% or 4% a year, a typical pace, it could take three or four years to offset those costs .
For a short-term ownership to work, start by choosing the neighborhood carefully, looking for one where prices have been rising and values are based on solid factors such as good schools, convenient shopping and easy commuting. Be wary of areas where prices have soared, as they could flatten or fall.
Think carefully before buying a newly built home. These often sell for a good deal more than comparable existing homes. Though there are benefits, such as a builder's warranty and freedom from repairs, buyers may not want to pay that premium if the market has soured in two or three years. Also, developments sometimes stall, and you could be left with a perfectly nice home surrounded by muddy lots.
On the other hand, if the development is really hot, you might do well on a newly built home, especially if you can get an early buyer discount.
Next, be sure not to pay too much. That sounds pretty obvious, but your real estate agent may argue, for example, that at today's low mortgage rates , such as 4.36% on a 30-year fixed-rate loan, borrowing an extra $10,000 will add only $50 to the monthly payment. But taking on another $10,000 in debt means you must sell for $10,000 more to break even. So drive a hard bargain, don't look desperate and be willing to walk away.