By: Charlestien Harris
All month, we have been talking about homeownership topics in observation of National Homeownership Month. But we don’t want to overlook that all-important question: Are you ready to become a homeowner?
Sometimes, the excitement and the thought of possibly becoming a homeowner can be so overwhelming that it might cause one to overlook some very important facts that could help to make that final decision. Buying a home is the biggest financial decision many people will ever make. With any major decision, a key question to answer before proceeding is asking yourself, “Why?”
There are some definite advantages and disadvantages to homeownership. For many people, owning a home is just a dream, and they think they cannot afford to do so. For others, it is just not the right fit for their lifestyle, and renting is the best choice for them. Overall, just knowing the basic factors that may influence that decision is very important. We will be discussing some of those factors below.
Advantages of Homeownership
- Stable housing costs: If you have a fixed-interest rate loan and your taxes and insurance are separate, your payments will remain the same until you pay off the loan.
- Tax benefits: You could possibly pay less income tax because all home loan interest and property taxes are deductible. There are some other tax benefits that are listed on the IRS website.
- Equity: Your equity is the difference between what you can sell the home for and what you owe. Equity grows as you pay down your mortgage. Homeowners frequently use that equity to finance remodels, college education, retirement, and other beneficial reasons.
- Control over your environment: You own the property, so you can renovate it to your liking, a benefit renters don’t enjoy. You can live as you would like in most cases. Homeowners may paint or repaint, have a pet or not, enjoy privacy, and decorate as you see fit. Renting can be restrictive when it comes to those things.
- Stability: You are not moving from place to place; you finally have a space you can call your own; and your address will remain the same for as long as you stay in the home. In so many ways, homeownership can provide a stable environment for you – as well as your family – and can add a sense of security and comfort to your day-to-day lifestyle.
- Improving your credit: As you maintain regular mortgage payments, your credit score will increase over time. Often, your credit score will take a downward turn once you take out the loan, but that is because, on paper, you have a sizable debt that you have to prove you can repay. As you make regular, on-time payments, that debt will look more and more like responsible debt, which can help raise your credit score. Just be sure not to receive any additional large loans until at least six months after taking out your mortgage.
Disadvantages of Homeownership
- Monthly costs: Sometimes, the monthly bills of a mortgage payment, utilities, maintenance, and other costs can add up to be more than paying rent to a landlord.
- No guarantees: The market conditions might change over time. There is no guarantee that the value of your home will increase, or that the neighborhood will stay the same, or that you can sell your house if you decide to move.
- High upfront costs: Closing costs on a mortgage can run from 2% to 5% of the purchase price, including numerous fees, property taxes, mortgage insurance, home inspection, first-year homeowner’s insurance premium, title search, title insurance, and points, which are prepaid interest on the mortgage. It can take about five years to recover those costs.
- Maintenance and repairs: As the homeowner, if anything breaks or needs repairing, you are responsible for the upkeep of the property. You are also responsible for paying the taxes and insurance, as well as maintaining the safety of the property for insurance purposes.
- Decreased mobility: As a renter, when the lease has ended, you could move or relocate to another complex. A homeowner often can’t move until the home is sold or rented to another party.
- Fewer features: Some apartment complexes come with certain amenities such as pools, playgrounds, and security. If you are a homeowner and a preferred amenity does not come with the house, that is an added expense, and it may be one that you might have to do without. The amount of house you can afford may limit your wish list when it comes to some of the features you would love to enjoy.
Owning a home comes with a lot of responsibility, and it has its advantages and disadvantages. The benefits of home ownership don’t come without costs and limitations. For some, renting may be a better option. The pros and cons of buying a house should be considered as you think through the process, and before a determination is made. The ultimate decision is up to you!
For information of this and other financial topics, please email me at Charlestien.harris@southernpartners.org, or call me at 662-624-5776.
Until next week – stay financially fit!