How Long Should I Live in My Home?
The path to wealth often includes owning a home. While buying a home is far short of an inexpensive affair, over the long run it’s historically been a good investment.
Rent or Buy
A good first step to take when deciding to buy a home is to use a rent vs buy calculator. These tools look at your current rent and a projected housing payment, while factoring in some other assumptions to tell you for how long you need to live in your home for it to make more sense than renting.
Know Your Affordability
Using affordability calculators and getting pre-approved help you craft a budget. As we’ve elsewhere discussed, know what is the right amount of house for you, not the maximum a lender is willing to lend you. This often means borrowing 10 or even 15% less than what a bank is willing to lend. Also consider the amount of cash available to you and consider the fact that in addition to your down payment, you will need to include closing costs and retain cash for emergencies.
The 5 Year Rule
A common rule-of-thumb is a five year window. This allows for home prices to fluctuate but generally rise and after two years, you will not be hit with a capital gains tax when selling (subject to state laws). This also allows in most circumstances enough time for borrowers to see their home appreciate enough to recoup the expenses associated with the purchase (beyond closing costs, including items such as moving, furniture, updates, etc).