Purchasing a home can be one of the biggest decisions individuals make in their life. Before deciding whether you want to own a home, check your finances and see if you can afford to buy one. It’s important to see if the benefits outweigh the cost. Even if you can afford to buy a home, doesn’t mean you should. Are you emotionally ready for the commitment, unpredictable issues and responsibilities? Measuring the advantages vs disadvantages of both home ownership or renting can steer you to making the best suited decision for your lifestyle.
Purchasing a home can be a lengthy process. See my blog on Steps in buying a home.
Don’t make any regretful decisions and learn more on the pros and cons of renting vs. owning.
Owning a Home
It is most people’s ultimate goal and biggest accomplishment in life when it comes to purchasing a home. It’s the American dream. Deciding to purchase a home doesn’t happen overnight. You must decide if you are mentally and financially ready. After all, purchasing a home is an investment so there are risks involved.
Advantages in Owning a Home
Building Home Equity
Your home equity is the difference between how much your home is worth and the amount that you owe. It will continue to grow as you make payments. Ex: You owe $700,000 in loans for a property that is currently worth $1,000,000, then your home equity is $300,000
Home Appreciation and Investment Opportunity
Majority of the time, home value increases. You can sell it for more than you purchased.
Freedom to Design and Renovate
Purchasing a home provides you with the ability to design and renovate your home the way you like it. If you are growing a family and need additional bedrooms, you have the ability to expand your home vertically or horizontally. Personal taste and design changes. Tired of the vinyl flooring and want to opt for white oak engineered hardwood? You can make changes and adjustments to your home without permission. Some renovations might require a permit so consult with your city about regulations and restrictions.
Federal Tax Benefits
Owning a home can provide tax deductions for some expenses. Examples: mortgage, home repairs, and property taxes. These can be added to tax deductions when filing.
Fixed-Rate Mortgage Payments
Although there are additional monthly payments in owning a home, mortgage payments will generally stay consistent month to month.
Owning a property allows more peace and privacy within your home and further away from neighbors. There is flexibility in creating a higher fence and taller bushes to separate your home from your neighbor’s
Disadvantages in Owning a Home
Costly Upfront Cost
Although it isn’t required to put a 20% down payment, you still have to put down a lt least 3.5% down and have additional funds for closing costs which include inspections, appraisal, lender fees, title insurance and escrow fees
Repairs, Maintenance, and Damages
There will be potential surprises when it comes to owning a home. Pipes burst, leaky roofs from weather conditions, or clogged drains and toilets. It is your responsibility to fix it or hire someone that can. With older homes, there might be more damage than expected when walls are opened or repairs being made.
Property Taxes – (Additional Monthly Payments)
Added cost on top of mortgage payments.
Huge Risk Home Depreciation
Purchasing a home is an investment. And with investment, comes risk. The value of the home can decrease.
More Difficult to Move
Moving can be a long, stressful process with marketing and selling the home, then moving furniture out and into a new place. And ideally, you should live in a home for 3-5 years before selling to make up for the closing costs from the home purchase and gain equity.
More Responsibility in Owning a Home
Owning a home holds a lot of weight. Bills need to be paid on time, repair any damages immediately, and be financially stable to cover all the cost.
If you are deciding whether or not to own a home, you need to understand your finances, future goals and living situation. Do you have a stable job where you can afford the additional payments? Are you likely to live there over the next few years? Do you have a pet that needs a backyard? Are you growing a family that needs more space? If you answered yes to any of these, consider purchasing a home.
Renting a Home
When it comes to renting, there are fewer responsibilities besides paying your monthly rent. Although it feels like money is being thrown out, there are upsides to renting.
Advantages in Renting a Home
Easier to Move and Relocate
If you are not ready to settle, renting is a great opportunity to be able to live in all parts of the world. Renting an apartment is usually smaller than a home. With that, it’ll be easier to pack your furniture and move out.
Maintenance, Damages, and Repairs are Covered
When there is a random surprise such as a leaky faucet, your landlord can have it fixed for you, at no cost. Tenants are not responsible for damages that they have not caused.
No Additional Payments Besides Rent and Utility
Majority of the time, tenants are only responsible for rent and utilities. You will not be responsible for property taxes, Loan and Interest Payments, insurance, and HOA fees (if applicable).
Disadvantages in Renting a Home
No Freedom to Design, Upgrade/Renovate
There are limitations to creating a space exactly how you want it. Tenants are not allowed to build new windows, upgrade the countertops, or make cosmetic changes.
There’s a possibility of rent increasing when a lease ends. Depending on the area you reside, and if there is no rent control, monthly payments can increase when the lease ends. But if you are not happy with that, you can always pack up, move, and find a new place to live.
Not Building Equity
You will be making payments to temporarily live there, but it is not your asset. When it comes to owning a home, your monthly payments are steps closer to obtaining full home ownership.
There are guidelines that the landlord sets such as a no pet policy, noise regulation to prevent neighbors from complaining, etc.
No Tax Benefits
There’s no tax benefit of being able to include deductions when filing.
If you are not ready to buy a home, begin to save more while renting in order to purchase a home. Look into loan options so that you can qualify and begin the home search.
So, What is Right for You?
The bottom line, there are plenty of pros and cons when owning vs renting. Choosing to rent or own a home is a personal preference. Additional factors can affect your purchasing decision. Don’t feed into the pressure to purchase a home because everyone else is doing it. Take some time to be ready. Do you see your kids growing up here and going to school here? Where do you expect to be working? Are you financially independent and can afford to buy a home? Are you building a family and ready to plant some roots? Are still constantly on the move and always traveling?
Those who are renting might wonder whether they should invest in a property, while those who own a home wonder if they can cut down home payments and downsize in their living space. Find a realtor that can help you weigh out all the possibilities and help you make the right decision that fits your needs and lifestyle. Let’s get you started in finding your dream home.