Is home ownership right for you?

Advantages of home ownership:

Stability and more permanent roots:
Home ownership can provide a stable environment for you and your family and can contribute to feelings of pride and greater community involvement. When you purchase a property, you have the luxury of staying as long as you’d like. There is no risk of a landlord selling the property, evicting you or suddenly raising your rent beyond what you can afford. If you have a fixed-rate loan, taxes and insurance rates may rise over time, but your principal and interest payments will never go up.

Freedom to control your environment:
When you rent, there may be limitations on what you can do with the property. You may not be able to have pets or hang pictures on the walls.  When you buy a home, you have the freedom to live as you wish. If you want to adopt a dog or dig up some grass to plant a garden, you don’t need anyone’s permission (unless you live in association with strict bylaws – but that’s another topic). If you don’t like something about the house, you can change it to fit your needs and your style. Whether it’s fresh paint and carpets or a total kitchen renovation, improvements you make can often increase the value of the property.

Tax benefits:
Many tax benefits could potentially make owning a home a wise decision. If you own a home and don’t have a mortgage greater than $750,000, you can deduct the interest you pay on the loan. This potential deduction is one of the most significant benefits of owning a home versus renting. You can also include interest that you may have paid as part of your home closing (which you will find on your closing settlement sheet). Furthermore, as of this writing, you can deduct up to $10,000 in property taxes. Ask your accountant about the many specific tax benefits of purchasing a home.

Increasing your net worth through home equity:
When you buy a home, your monthly mortgage payments are somewhat like a forced savings plan. Over time, you accumulate equity, which represents your ownership interest in the property. You can convert this equity to cash by either selling the property or borrowing against your equity with a home equity line of credit. And if the market goes up, your house may increase in value and appreciate over time resulting in a capital gain when you go to sell. When you rent your monthly payment only contributes to your landlord’s equity.

Renting advantages, and ownership risks…

Maintenance / repairs:
When you rent, repairs are the landlord’s responsibility. If a pipe bursts at 3 in the morning, it is a nuisance, but it’s not your problem to fix. However, keep in mind some landlords do minimal repairs and sometimes leave the property in a constant state of disrepair. When you own a home, it’s your problem, and it’s your expense. It doesn’t matter whether you’re buying a new or an older home; all buildings require regular, ongoing maintenance on both the exterior and the interior. Ignoring seemingly small issues or routine maintenance can amount to significant problems over time if not dealt with correctly and regularly.

Increased mobility:
When you own a home, you are responsible for the payments of the loan until you pay it back in full. If you want to move, you must first either sell your home or rent it out (and hope you have responsible tenants). If you have to travel often in your career or haven’t settled into a job you like, or if you’re a free spirit who wants to be able to change your surroundings on a whim, it might make sense to continue renting. As long as you don’t have a long lease contract, you are free to move about the country when you rent.

Monthly payments:
Depending on where you live in the country, monthly payments may generally be higher when you own a home. However, because interest and property taxes can be deducted on federal income taxes when you itemize your deductions, it often still makes financial sense to buy. At present, mortgage financing rates have been very favorable compared to periods like the early 1980s. With a lower interest rate environment, it makes the monthly mortgage payments much more affordable.

Market volatility:
There are no guarantees that a property you purchase will increase in value. Have you ever heard of the phrase “being underwater” on a mortgage? Major market shifts, global events, or even wear and tear from neglect can cause the value of your home to decline. If your home has depreciated significantly and you have to sell before you pay off your loan, you could find yourself in a situation where the balance owed to the bank is more than the new sales price. In this unfortunate situation, you would have to pay the difference between your net proceeds from the sale of the house and the payoff balance on your mortgage to the lender. Historically speaking, this is not the norm (more often than not, the opposite happens home values increase over time. However, there is always this potential risk when you buy real estate.

All things considered…

The equity, opportunity, and freedom homeownership affords undoubtedly contributes significantly to the “American Dream.” While home ownership is certainly not for everyone, there is tremendous pride and accomplishment gained in calling a property your own. For many people, owning a property creates more permanent roots and fond memories. It also establishes a sense of security, deeper community involvement, and peace of mind.