The 5 Year Rule For Buying A House

What is the 5-year rule? 

When buying real estate, more specifically a house, the general rule is that you want, or need, to own it for at least five years in order to break even on it when or if you sell it.  More experts are saying seven years, but we will discuss the “average” five-year rule.

What happens if you own it for less than 5 years?

1. You will pay thousands of dollars in closing costs, on each property.
2. You will pay more interest at the beginning of the loan than further into it.

How do you beat the 5-year rule?

1. You purchase a property that you intend to fix up and rent out for a payment equal to or higher than the mortgage payment.
2. Buy towards the lower end of what you can afford, and make extra payments to pay down the principal.

Why own for five years minimum?

1. After five years, the cost of owning a home equates to the cost of renting and becomes less expensive to own.
2. The five-year mark is where you start to build equity in your house.
3. Rental prices are going up and eventually, your mortgage payment could be less than if you rented.
4. Five years mean stability and long term financial goals.

You are not required to listen to what the bank says you can afford.  The smarter choice is to buy less than what the numbers say, get a lower payment, and have the extra money for repairs, upkeep, and maintenance.  Also, paying down the mortgage, by making extra payments each month, will help you start building equity that much faster.  More equity means more in your pocket when you sell your house.

Call me today at 661-979-9000 to discuss your finances and see how much house you can afford, and how much house you want to afford.  Email me at [email protected] if that is easier.

Links:

Interest

http://www.ehow.com/facts_5011133_what-mortgage-rates.html

Cost of owning a home

http://www.kiplinger.com/features/archives/2007/05/homecost.html

Paying down the mortgage

http://www.ehow.com/how_2221941_pay-down-principal-mortgage.html