Transitioning from renting to owning can feel like you’re entering into unknown territory, but it’s not as challenging as you might think.
Listen, there’s nothing wrong with renting. I did it for years, and it has its own unique set of benefits. That includes the flexibility of being able to move every few months without having to worry about having all of your equity tied up in an asset that can take considerable effort to tap into.
There’s also peace of mind that you don’t have to cover major repairs to things like HVAC systems, plumbing, the roof, or the foundation. But, for most people I know – including some close friends – owning a home offers superior advantages that outclass these perks.
But in order to make the transition smooth, I’d give you the following advice:
1. Manage Your Mortgage
A mortgage is a significant financial commitment that lasts for several years. (In my case, it’s a 30-year commitment – though you can get mortgages for 10 or 15 years if you’d like.) Ensure you make payments on time, and if possible, consider making extra payments to reduce your interest rate and shorten your mortgage term.
There are a dozen different rules of thumb for calculating how large of a mortgage you can afford, but be conservative. Just because a bank or lender approves you for a certain amount doesn’t mean you have to spend that much. In fact, I would personally recommend only spending 75 to 80 percent of that sum. This will keep you in a much more comfortable range.
2. Homeowner’s Insurance
Homeowner’s insurance covers your home and personal belongings in case of theft, fire, and sometimes natural disasters. (In many states, Southern states specifically, homeowners insurance may not cover flood or hurricane-related damage. Always double-check this when getting a new policy so that you’re aware of what is and is not covered.) Make sure you have adequate coverage, and don’t hesitate to compare policies to find the best rates.
In addition to having homeowner’s insurance, I would encourage you to get familiar with when to use it. Just because you have a policy doesn’t mean you need to file a claim every time something goes wrong. The cost of the claim may be unrealistic.
Take flooding or water damage as an example. I recently spoke with Ryan Kelly of Chicago Water and Fire, and he told me, “Many times, when responding to a loss of some sort, we can vacuum water and place a small amount of drying equipment quickly enough that filing a claim would not be advisable. And unless the damage is extensive, requiring major reconstruction, often your homeowner’s insurance deductible will be more than the cost of quick remediation.”
With all that being said, it’s important to have both insurance policies and the right professionals on speed dial.
3. Maintenance Costs and Repairs
Maintenance costs can add up quickly, but it’s crucial to keep up with them to prevent significant repairs down the line. I budget for regular maintenance every month, which includes HVAC tune-ups, lawn care, and gutter cleaning.
Home repairs are inevitable, so it’s crucial to learn basic repair skills, such as fixing leaky faucets and unclogging drains. I also find it essential to have a contingency fund set aside for emergency repairs, such as burst pipes or roof leaks.
4. Homeowner’s Association
I live in a community with a homeowner’s association (HOA). There are lots of positives to having an HOA, though I’ll also admit that there are several drawbacks and issues. (Mainly neighbors who like to make a big deal out of small things.) But anyway – be sure to read and understand the rules and regulations of your HOA. These fees can add to your monthly expenses, but they also ensure that the community is well-maintained and safe.
Owning a home isn’t for everyone. (I love it and don’t think I’ll ever go back to renting.) But if it’s something you’re considering, make sure you plan ahead and account for the various items and protections discussed above. It’ll ensure a much smoother transition.
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