What Are the Risks of Buying a Home?
Home buying is an investment. And, as with any investment, there are certain risks you need to consider (although, overall, home ownership is one of the best investments you can make). Review the following risks to make sure you are ready for the responsibility of home ownership.
Risk 1: A decline in value
As we have seen in the recent "mortgage meltdown," the value of a home can decline. Although, historically, this does not happen often, it still tells you that there is no guarantee that the value of your home will appreciate. Over the long run, however, home prices do tend to appreciate, and home ownership is far less risky than the stock market!
Risk 2: Maintenance costs
It costs money to maintain a home - paint, siding, roof shingling, HVAC costs, etc. That means you need to have the income to pay for routine maintenance costs as well as the inevitable big-ticket items that come with long-term home ownership.
Risk 3: The loss of other investment opportunities
In the short run, alternative investments like stocks, bonds, etc. may give you a better return in less time if their value rises faster than that of the homes in your areas. In such a case, you might do better as a renter or investor. However, keep in mind that, as stated above, this is a short-term strategy.
Risk 4: Less flexibility
It is a fact that a home ties you down to a specific neighborhood and city. Many people like this fact because it allows you to "set roots" in a community. However, home ownership does not make it easy for you to take a new job elsewhere or move to a different location. And, if you have to sell in a hurry due to a divorce, job loss, etc., then you can take a heavy financial hit. Finally, if you have a large mortgage payment, it can make it difficult for you to invest money else where (savings, investments, vacations, etc.).
If you are willing to shoulder those risks, then home ownership is for you!
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