For some becoming a homeowner is a dream come true.
For others it can be a nightmare due to all the extra costs associated with owning a home.
Homeownership has it’s advantages and disadvantages.
In this article we’ll look at all the pros and cons of owning a home.
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Rent vs Buy?
The age-old question is it better to rent or buy a home? There really isn’t a right answer to this question. It depends on you, your situation, and future plans. It’s not a clear cut yes or no answer.
If you’re debating weather or not you should rent or buy a home there are advantages and disadvantages to consider and some questions you need to ask yourself.
How long will you be living in the home?
If you don’t plan on staying in a home or city for more than 5 years then renting probably makes more sense for you. However, if you’re not going anywhere anytime soon then buying is cheaper than renting in the long run.
Do you make enough money to be a homeowner?
As a property owner not only means you’ll now have a monthly mortgage payment to worry about. As an owner you’re responsible for anything that needs to be repaired. If a pipe busts you can’t just call your landlord and have it fixed for free. You’ll have to hire a professional to make any repairs.
There are homeowners associations, mortgage insurance, homeowners insurance, and property taxes. The various fees all add up and can be quite costly in some cases.
Pros and Cons Of Owning A Home
- More privacy
- Real estate increases in value overtime at a rate above inflation
- Pride of homeownership
- Can customize and renovate the home to your liking
- Interest paid on mortgage is tax deductible
- Mortgage payment is usually not much more than renting
- Build up home equity, a home is like a big puppy bank helping you save money
- Can have as many pets as you want
- You will eliminate monthly housing payments once it’s paid off
- Consistent payments with a fixed-rate mortgage
- More difficult to move to a new location
- Extra costs such as, repairs, taxes, insurance, etc.
- Upfront costs – down payment, home appraisal
- Majority of mortgage payment goes towards interest in the first 10 years
- Landscape maintenance
Advantages of Renting a Home
- Rent payments may be lower than a mortgage payment would be on the same house
- Not responsible for paying for repairs
- Can pick up and move to a new location easily
- Much lower upfront costs than buying
- No HOA dues
- Low move-in costs
Disadvantages of Renting a Home
- Can’t make changes to the property
- Don’t earn a return on your payments
- Monthly rent payments could increase
- Renting will not help increase your credit score
- Landlords usually don’t make cosmetic upgrades home may feel dated
Tax Benefits of Owning a Home
An advantage to owning a home that is often talked about is the tax savings. When you have a mortgage payment the majority of that payment is interest. However, you may be able to write off the interest you pay and not have to pay taxes on that portion of your income.
There are several other tax breaks giving to home owners. Fool.com has an article about the 9 tax breaks every first-time homebuyer needs to know.
Home equity is the difference in the loan balance on your mortgage and the market value of your home. For instance if your home is worth $200,000 and your loan balance is $100,000, you have $100,000 in equity.
When you own your home you will build equity with every single mortgage payment you make. It is sort of like a forced savings account. You can use your equity to take out home equity loans in the future to help you pay off high interest debt, or make renovations or repairs to your house.
Getting a Mortgage Loan
Most buyers think they will not qualify for a home loan and that is the reason they rent. Mortgages can be had nowadays without a 20% downpayment and with less than perfect credit.
FHA loans, for example require just a 3.5% down payment with a 580 credit score. The down payment can be a gift from a friend or family member or come from a down-payment assistance program.
Home Loan Qualification
- 580+ credit score
- 3.5%+ down payment
- Debt-to-income ratio below 41%
- Proof of income
- Steady employment
- Sufficient funds in reserve
A rent-to-own home may look like an attractive options especially if you have bad credit and cannot get approved for a mortgage. However, these types of agreements are very risker for the buyer.
The property owner may fall behind on the mortgage payments and you will be forced to leave the home. These rent-to-own agreements usually require an upfront down payment or deposit as high as $15,000.
That’s a lot of money to have on the table for a home you don’t own yet. You may change your mind or find another home you like and you will lose out on your deposit.
There are many pros and cons of owning a home. It’s up to you to decide if it’s in your best interest, or you should continue to rent until the time is right.
There are many housing expenses involved with being a homeowner. Property taxes, homeowners association and insurance, mortgage insurance, cost of repairs and upgrades.
Are you ready to own your own home?