Buying a House Should Represent A Five-Year Commitment

When consumers consider the commitment of buying a home, it’s the financial side of the equation that usually gets the most attention. After all, buying a house is likely the largest single financial transaction you’ll make in your lifetime. However, there’s another important consideration, too, and that’s the time commitment you’ll need to make in order to keep your finances healthy.

A majority of homeowners, and especially first-time buyers, will likely have plans to upgrade or move in the future, typically for more space or better work and personal opportunities. However, if you move too soon, you risk losing money on the transaction– possibly a lot of money.

In the mortgage industry, loans are structured in such a way that, in the early years, your monthly mortgage payments are largely going toward paying interest only, leaving the principal balance on your home untouched. After the five-year mark, however, you’ll see more of each monthly payment applied to the principal you owe on the home. At this point, it generally becomes safe to assume you have enough equity in the home to ensure you won’t lose money by selling.

Each homeowner’s situation is unique, of course, and consulting with your mortgage lender or other financial professional can be beneficial if you find yourself needing to sell sooner than anticipated. Although the so-called Five Year Rule is a good benchmark for making sound financial decisions, there may be options on the table that suit your particular situation.

Image via Flickr/americanadvisorsgroup