Most houses don’t come cheap, so if you’re looking to buy, you want to be smart. And typically, the longer you plan on owning the home, the better. Personal finance blog MoneyNing explains why, suggesting the “five-year rule” in the process.
Photo by daryl_mitchell.
Despite the standard 30-year mortgage, most people don’t live in their homes for thirty years. Usually, you move on a lot sooner than that, but if you only live in your home for a few years, you may end up losing money on it. MoneyNing explains:
When you purchase a house, the general rule is that you want to be sure you’ll be in the same location for at least five years. Otherwise, you’re probably going to take a hit financially.
The first hit is your closing costs. Every time you go through closing — buying and selling — money hits the table. Depending on where your house happens to be, the buyers and sellers pay different amounts, but everyone pays something. This can easily add up to thousands of dollars, and limiting how often you have to pay that kind of money is always a good idea.
And you take a second hit when you look at your mortgage statement to see exactly where your monthly payments are going. The way mortgages are structured, you pay much more interest in the first few years that you own a house. Usually, it isn’t until you’re about five years into paying down your mortgage that you’ve made enough progress on the principal to make it a better deal than paying rent each month.
Depending on where you live and the details of your home purchase, your mileage will vary, but that ballpark is fair. This calculator helps you figure out how long you need to live in your home for it to beat renting. And flipping a house is an entirely different story, because you’re investing tens of thousands of dollars of cash into the home in order to increase its value dramatically and (ideally) sell it for much more than you paid.
Again, mileage may vary a bit, but overall, it’s a decent rule of thumb to follow for first-time homebuyers. For more insight, check out the full post.
The Five Year Rule for Buying a House [MoneyNing]