How to Consider the Financial Risks of Buying a Home

Trying to weigh the risks of buying a home is like evaluating the risk/reward of any other major investment. But perhaps more so than with other investments, it's hard to keep your emotions out of it.

Things You'll Need

• Financial Calculator
• Pencils
• Notebook Papers
• Online Mortgage/finance Services

Instructions

1. Determine the costs of home ownership (down payment, mortgage payments, insurance, real estate taxes).

2. Analyze your income relative to the monthly expenses of owning a home. If you're dependent on two incomes to maintain and pay for the house, analyze what would happen if one income were lost.

3. Analyze the tax benefits of ownership versus the cost of renting.

4. Consider why you're buying the house. If your reasons are strictly emotional ("I want my own place"), you may not be able to justify the financial burden.

Tips & Warnings

• If you'll be financially strapped to make ends meet buying a particular house, examine if you're overbuying (paying too much for a house given your financial situation).

• Don't buy a house just because other people (peers, parents, co-workers) say you're supposed to. They don't have to live with the payments - you do.

• Don't assume you can cut your living costs to the bone to afford a house. You can eat only so much macaroni and cheese.