The decision to buy a house is about more than just mortgage interest rates, the Case-Shiller Home Price Index, and property taxes. Your home is more than just an investment, it's also shelter, security and safety. That's why you should think about more than just finances when making the decision.
The money is important, and in the case of a family's first house purchase, moving out of the parents' place or leaving the rental behind, this may be the only time that the housing market actually plays a role. When you move from one owned house to another, you're on both sides of the market—buying and selling. Whether it's a buyers' market or a sellers' market, you'll have the advantage at the same time you have the disadvantage.
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Ask yourself these questions before committing to buy a house.
1. Can you really afford a house? The negotiated price is only one piece of the puzzle, and when you finance the house, the amount you pay over time including interest will dwarf the number you see on the listing. Not only do you have to consider your monthly payment, but you'll need to consider insurance, taxes, association fees, and other fees. The cost of ownership doesn't stop there, either. There are more costs to consider that make owning a house often less financially savvy than renting, even assuming rent prices increase.
2. How long do you plan on staying? If you plan on moving the next few years, you may not want to take on the risk of owning a house. If the home price increase doesn't cover the closing costs and any real estate agent fees, you will lose money. Whether renting is a better financial decision than buying depends on how long you stay in the house. This calculator can help you compare renting vs. buying and let you know how long you need to stay in a house to make the purchase financially worthwhile.
Keep in mind that many people often plan to stay in a house longer than they do, either because their financial condition leads them to desire something larger or because their family grows faster than they expect.
3. Do you want the responsibilities? When you are renting, the landlord takes care of maintenance. Various services are included in the cost of rent, and you don't have to deal with fixing plumbing when it breaks or maintaining the appearance of the yard. As a homeowner, you'll be required to handles these chores yourself—or commit to the expense of outsourcing the tasks.
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4. Why do you want to buy a house? Beyond the responsibilities, you may be at a point in your life that you want to feel you have ownership of a large piece of property. There is a reason home ownership has become the American Dream; owning property wasn't always a benefit available to everyone. In this country and at this time, it is, and home ownership recognizes the liberty that generations before us fought for. Perhaps your family is growing and you want to future-proof your living arrangements, or perhaps you want more control of your living environment than what you can have by renting.
Financial considerations are a major part of the decision to buy a first home, but the state of the housing market is usually the last thought. When a family decides it needs to move into a house, it's usually a decision that can't wait for market conditions to change. The time, if it is right, is so due to other reasons, like the needs of the family. Don't ignore the finances, but don't forget about all the questions that must be answered before buying a house.
Luke Landes writes for Consumerism Commentary, where he encourages discussions about money and consumer issues. Consumerism Commentary regularly tracks and reviews the best credit cards and other financial products.