Get Out of That Apartment and Buy a House: Here's How
By Brandon Cornett | © 2014, all rights reserved | Duplication prohibited
Attention apartment dwellers! I was once like you. I too used to live in an apartment that I hated, with noisy neighbors I wanted to strangle.
In fact, for more than five years I chose apartment life because I wrongly assumed I couldn't buy a home with my level of income. Eventually (and thankfully), I ran the numbers to see what kind of a mortgage I could afford and came to a pleasant conclusion...
I could buy a home for the same amount of money I was throwing away in rent payments each month!
Yes, you read that correctly. In the market I was in at the time (Columbia, Maryland), I found that I could buy a home and pay roughly the same amount toward a mortgage payment as I was paying in rent. And while the size of the payment was about the same, the benefits were clearly slanted toward buying a home.
When you pay rent each month, you are paying your landlord or property manager for something you will never own. On the other hand, when you make a mortgage payment each month, you are putting money toward something you will own -- a house.
- Paying rent is a one-way financial transaction. You put money in, but you get nothing back in return except the right to temporarily reside on the premises.
- Paying a mortgage is an investment in your future. You put money in, and you gain equity (ownership) of the property in return.
You Can Buy a Home for What You Pay in Rent
Most people who live in apartments are shocked to find out that they can buy a home and pay roughly the same as their rent amount in a mortgage payment each month. Let me show you how this is possible, using an example from my own past experiences.
I once rented a 1,200-square-foot apartment and paid $900 per month in rent. Then one day, I began to wonder how far that money would go if I were to buy a home in the same area. So I went online to get an idea of housing costs. Then I used a mortgage calculator to see what my monthly mortgage payment would be on a $160,000 home with an interest rate of 6% over 30 years (a traditional 30-year, fixed-rate mortgage loan).
If you're a math genius and you've already done the numbers, you see what I'm getting at here. If, like me, you're not a math genius, then please allow me to sum it all up for you:
I found out that I could buy a home in the $160,000 range for about the same amount of money that I was paying in rent each month!
Of course, this is just one scenario of how a person might buy a home for about the same amount as what they pay in rent. There are also many variables to consider, such as the interest rate, the person's credit score, the average price of a home in the area, etc.
But I hope this illustrates my point. You may be surprised to find out that you can buy a home for the same amount as your rent payment, or perhaps only a little more than your rent.
Rent or Buy - An Easy Question to Answer
Should I rent or buy a home? That is the question. In my opinion, this is a no-brainer when you consider the benefits of homeownership. Real estate is one of the best investments you can make, regardless of what the economy is doing. This is especially true if you buy a home in a growing area, or a location where the property values have consistently risen over time.
Sure, there are certain scenarios where it makes sense to rent. For example, if you're only going to be in an area for a year or sell, it might not be worth it to buy a home (with everything that entails). But in most situations, it makes good financial sense to buy a home instead of renting a house or apartment.
Buying a Home to Escape Apartment Life
So we have addressed the financial reasons to buy a home instead of renting. But there are also quality-of-life issues to consider here.
For example, consider the noisy neighbors you often have to deal with in apartment situations. I have lived in a total of four apartment complexes in my live (in Rhode Island, San Diego, Maryland and Texas, chronologically), and every time I've had at least one neighbor who drove me crazy. Surely you can relate to this?
Well, when you buy a home you have the advantage of space surrounding your home. Unless you buy a duplex, you will not have any common walls with your neighbors. This means less noise and a more peaceful life, and you cannot put a price tag on that! This is one of the key advantages of buying a home versus renting an apartment.
How to Buy a Home - By the Numbers
Okay, so you're convinced that it makes darn good sense to buy a home and escape apartment life forever. Now what? How do you begin the process of buying a home for the first time?
Well, the process is a bit different for everyone, based on such variables as level of familiarity with the process, financial background, etc. But let's find some common ground here. Below, I've outlined the steps you will probably go through when you buy a home for the first time. I've spread some hyperlinks throughout the steps so you can learn more about a topic that interests you.
While it makes sense to perform these steps in the order I've listed them below, you should be flexible and keep an open mind. Your home buying process may vary slightly from what's presented below.
With that said, here are the common steps you'll go through to buy a home (and escape apartment life forever):
- Step 1. Examine Your Finances — Before you attempt to buy a home you'll want to make sure your financial house is in order. Start by getting a copy of your credit report and reviewing it for errors. Next, find out how much you can afford to pay each month. Here are some other preliminary steps to go through before buying a home.
- Step 2. Choose a Type of Mortgage — When you buy a home you'll need to obtain a mortgage loan to pay for it. Unless, of course, you're one of the lucky few who can buy the home outright in one payment. Start by reviewing the types of home loans that are available these days.
- Step 3. Get Pre-Approved — After you've decided which type of mortgage loan is right for you, you'll want to choose a mortgage lender and get pre-approved for a loan. This will help you in several ways. For one thing, it will show sellers that you are serious about buying their home (and financially capable). This can make a big difference in whether or not they accept your offer.
- Step 4. Find a Real Estate Agent — When you buy a home for the first time (as is the case when you go from apartment life to home ownership), it's a good idea to have professional help. Obviously, this comes in the form of a real estate agent. Here are some tips for finding an agent to help you during the home buying process.
- Step 5. Choose a Neighborhood — Some first-time buyers neglect this step, much to their detriment. They focus too heavily on the home itself and fail to consider the neighborhood where the home is located. Which neighborhood you choose is almost as important as which home you choose. After all, neighborhoods have a direct influence on property values, commute time, quality of life, entertainment and educational opportunities, and a lot more.
- Step 6. Start House Hunting — For most people, house hunting is the most exciting part of the home buying process. And while it's okay to be excited, you also need to be focused on the task at hand. Before you buy a home be sure you know as much as possible about the property. Here are some house-hunting tips to get you started.
- Step 7. Make an Offer — When you have found a home that meets your needs, the next step is making an offer on the property. For this home buying step, work with your real estate agent to find out what a reasonable offer would be, based on recent and comparable sales in the area.
- Step 8. Get a Home Appraisal — Before you buy a home the mortgage lender will want to determine whether or not the home is worth the amount you've agreed to pay. They do this through the home appraisal. Your lender will arrange for the appraisal, and you basically have to stand by and watch (while hoping that the home appraises for the price you've agreed to pay).
- Step 9. Get a Home Inspection — I would never buy a home without having it thoroughly inspected by a professional home inspector. And I recommend that you do the same. After all, the inspection gives you the peace of mind of knowing what condition the home is truly in, before you buy it.
- Step 10. Settlement / Closing — The period between offer acceptance and the final settlement is known as escrow. You've probably heard somebody say, "My house is in escrow." During this part of the home buying process, you might have additional inspections (for radon, pests, etc.), and you'll likely have some more paperwork to finalize as you move toward the closing / settlement date. The articles below will tell you what to expect leading up to and during the settlement process.
Conclusion and Summary
Well, my apartment-dwelling friend, I hope you've learned a lot from this tutorial on how to buy a home (and say goodbye to apartment life forever). Let's recap what we have discussed up to this point.
Believe it or not, you may be able to buy a home with a mortgage payment similar to what you're currently paying in rent each month (or only slightly more than your rent). Many apartment dwellers don't realize this. But you do, because you've read this tutorial. So you your first step is to do a little homework to see what homes are going for in your area.
After that, you can use a mortgage calculator break those sale prices down into monthly payments. This will give you a good idea of your price range, based on what you can afford to pay each month.
In this article, I've explained how to buy a home in ten steps. If you would like a more detailed look at this process, check out our 101 Steps to Buying a Home.
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