Buying a home may be one of the biggest investments you ever make. But it differs from other types of investments in a number of important ways. Before you buy, make sure home ownership is the right choice for you.
4 key differences
1. May be hard to get your money out
Some investments lock in your money for a while. But you can usually pay a penalty and get your money out if you really need it. Buying a home may tie up most of your savings. Turning it into cash means selling it or renting it out — and that can take a lot of time and effort, especially in a slow market.
2. Difficult to plan for all the costs
Most investments have costs like commissionsCommissions What you pay to a broker or agent for their services. Often called a “sales commission”. For example, you pay a fee to someone who buys or sell stocks or real estate for you.+ read full definition and fees. The costs to maintain a home are different, and many are hard to plan for. There are taxes, utility charges and maintenance costs. You’ll also pay interest on your mortgage. And interest rates can go up, making your home more costly to own.
3. Value depends on many factors
Like many investments, the value of a home can be affected by the economy and interest rates. But it can also be affected by other factors:
- Location of your home
- Your home’s size, age and condition
- The housing market
Location matters when you buy a home. The return on investment for homes in some areas is higher than it is in others.
4. You are borrowing money — not just investing
Most people make a down payment on a house and borrow the rest by taking out a mortgage. This means you’re taking on debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition, not just making an investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition.
4 key points
- May be hard to get your money out
- Difficult to plan for all the costs
- Unpredictable returns
- Taking on debt, as well as investing