What are the Advantages of Home Ownership?
In America, over 65% of adults are homeowners. Are you looking to join the ranks of the American homeowner as well? Then you will want to consider the pros and the cons of purchasing a home. As the largest investment that you will likely make, it is important to see if homeownership is right for you.
Pros of home ownership
There are many reasons why you may want to consider buying a home. Here’s a look at five of the most compelling reasons why homeownership may be right for you.
1). You can build equity in a home
When you purchase a home, you will likely be putting down a down payment. This will instantly add equity to your home. Each month, you will make mortgage payments that will add to the home equity. That means that you will be well on your way to building wealth through your home ownership. Compare that to renting where you do not build any home enquiry when you are making monthly payments.
2). Mortgage interest and property tax may be tax deductible
Did you know that your mortgage interest and property tax may be tax deductible when it comes to your Federal tax filing? That means that you can recoup some of the running costs of owning your home. Many people who are considering home ownership will tend to fixate on all of the costs. However, you also have to consider the fact that some of these costs will become a benefit when it comes time to file your Federal taxes. Be sure to talk to a tax preparer to learn the latest rules on homeownership tax deductions.
3). Homes can increase in value over the life of a mortgage
When people think of investments, they hardly ever consider the fact that a home can provide some excellent returns. Consider the fact that the average home has appreciated in value about 3.5% to 3.8% each year. This can not only offset the interest payments, but can help homeowners build their wealth. If you decide to sell your home about 10 to 20 years down the road, you may find that you will get a surprising amount for your property. Therefore, you should not think about the price you will pay for your home. Consider how much that home will be worth down the road.
4). The homeowner can complete control over the renovations of the home
Do you want better control over how you want to design and renovate your home? Then you will want to take advantage of the complete control that home ownership has to offer. You can redesign the exterior and the interior of your home. You can also decide to add to the size of your home. When you are a renter, you typically will have no ability to make any renovations on your home. Not only that, there is no incentive to invest in renovating a rental property.
5). Home ownership builds credit history
When you become an adult, you learn how important credit history is when it comes to making major purchases. If you are looking to get a loan for a vehicle, then being a homeowner will work to your advantage. That’s because a lender knows that homeowners have to be more responsible when it comes to meeting their monthly payment obligations. Home ownership should benefit your credit score which will also allow you to get more competitive rates when it comes to auto loans and credit cards.
Cons of home ownership
While there are many intriguing reasons to become a homeowner, there may be some reasons why home ownership may not be right for you. Here’s a look at five reasons why you may want to reconsider the purchase of a home.
1). Requires a large upfront investment
When you purchase a home, you will be required to put down anywhere from 10% to 20% of the purchase price of a home. The average home costs about $287,000. That means that you will have to put down anywhere from $28,000 to $56,000 on the down payment alone. This does not include all the other fees that you will have to pay during the home purchasing process. If you do not have a lump sum of money already in the bank, then purchasing a home may not be right for you at the moment.
2). The home buying and mortgage lending process can be long and complex
Some people are surprised by how long it can take to purchase a home and get approved for a mortgage. In some cases, it may take you months to find the home that you want, in your preferred location that is also in your price range. Then you have to contend with the long mortgage application process which can last several weeks to a couple of months. If you are simply looking for a place to live, then you may be better off renting.
3). Home owners have to pay for maintenance and repair costs
When you are a homeowner, you are responsible for all the costs that are associated with maintaining and repairing the home. That means that every leaking faucet, every faulty wiring and each crack in the roof becomes your responsibility. If you don’t want to deal with the day to day maintenance of a home, then home ownership may not be right for you.
4). Homeowner is responsible for property taxes or HOA fees
In addition to making monthly mortgage payments, you may have to incur other costs as a homeowner. For instance, you will have to make annual property tax payments that can equal 1% to over 2% of the overall value of your home. Also, if you live in a community or a condo, then you will have to pay monthly HOA or condo fees.
5). Home ownership means a long term investment
When it comes to purchasing a home, you are making a 15 to 30 year commitment. That means that you will have to pay off the home mortgage loan or sell the home in order to satisfy the money that you will owe on the mortgage. That means that homeownership is not ideal for those who don’t want to be locked into a long term commitment.
Is home ownership right for you?
Now that you know the pros and the cons of homeownership, it is time to see if home ownership is right for you. Here are five questions that can help you figure out if you should commit to a home purchase.
1). Are you looking to stay in the same location for more than seven years?
If you are sure that you are going to stay in the same city for at least seven years, then home ownership will make sense. This will give you time to build up equity in your home. Also, you won’t have to deal with the time and the financial cost of going through the entire home purchasing and mortgage application process again within a few years.
2). Do you want control over the renovations and design of your home?
Some people want to have the freedom to repaint the exterior of their home or simply remodel the kitchen. If you have a firm idea as to what your dream home will look like, then you should consider home ownership.
3). Do you have a lump sum of money for the down payment?
If you have money saved up, then it will be easier for you to handle the down payment and the closing cost of purchasing a home. Also, having a lump sum of money will make it easier for you to get approved for a home mortgage.
4). Do you have good or excellent credit?
When you apply for a home mortgage, you will want to have good or excellent credit. This will improve your chances of getting approved for a loan. Most mortgage lenders are looking for a credit score of at least 700. You can check your credit score for free once a year from each of the three credit reporting companies:
5). Are you looking to fix your monthly costs?
When you rent, you have to deal with your monthly costs going up each year. With a home mortgage, you can get a fix rate and keep your monthly payments the same over the life of the loan. If that intrigues you, then you should consider purchasing a home.
Making the big decision about home ownership
Home ownership is an important decision that requires lots of research and contemplation. Be sure to seriously think about the pros and the cons of purchasing a home. When you are ready, purchasing a home may be a great option for you.
Tracie Breaux is the founder of The Cash Queen and she is passionate about empowering women to achieve financial independence.