Oct
19
The Pros and Cons of Owning a House

Preview

Buying and owning a house is a major decision for your lifestyle and finances, and it’s important to weigh the pros and cons before settling down.

In this article, we dig deeper into the benefits and downsides of owning a house and how you should weigh them in your decision-making process.

Pros
• Long-term investment strategy
• Low interest rates vs. inflation on rent
• Chance to build equity
• Federal tax benefits
• Greater privacy and freedom
• Spaces for hobby and trade

Cons
• Buying and selling rely on the market
• Higher upfront costs
• Waiting for equity
• Cost of upkeep
• Tied to the property
• Risk of investment

Pros of Owning a House

In most situations, the pros of owning a house outweigh the cons as long as you can afford to make the move.

Long-Term Investment Strategy

Houses are unlikely to lose value over time, and the price of homes is more likely to increase over time. The Federal Reserve Bank of St. Louis shows that the average price of homes sold in the United States is more often on an uphill climb and the housing market is continuously increasing in value.

When you purchase a home, you are putting money into an investment rather than helping a landlord or property manager make money. You will have something to show for your investment after all is said and done, and you can’t say the same about renting.

Low Interest Rates vs. Inflation

While a home loan still carries interest, these are much lower than inflation. Interest on a home loan may get as high as 7% in unsuitable conditions, but inflation consistently increases. This is when you see individuals renewing their lease for 10% or more of the rate for the previous year. Buying a home allows you to lock in a certain rate and saves you from inflation regarding housing.

Building Equity

Equity is the difference between what you can sell your home for and what you still owe on it. This increases over time as you pay down your mortgage and less of your payments go toward interest.

Building equity is more than how much you can sell your home for, and it proves useful if you need a larger loan later into home ownership. Home equity loans can help you make other large investments, providing you with greater income or financial relief.

Federal Tax Benefits

There are also several tax benefits to consider for buying a home. While renting is not usually a write-off, your mortgage interest is deductible on the first $750,000 of the purchase price of your home. You can also claim up to $5,000 of your property taxes ($10,000 if you file married), as well as some closing costs at your purchase time.

The actual amount you can claim depends on your buying situation, and it’s a good idea to get a rundown of these numbers before you purchase to understand the benefits.

Privacy and Freedom

One of the most annoying parts of living in a space that someone else owns is the lack of privacy and freedom. While there are certain laws that protect your rights as a tenant, landlords have the final say in most situations, and you’re limited in how you can customize your space.

When you purchase a home you can do almost anything you want (within municipal and potential HOA guidelines). This means you can fence in your yard for your pets or children and paint the walls whatever color you want to increase your comfort in your home.

Hobby and Trade Space

Owning a home often gives you more room for hobbies and trade work. You may not want to waste rent money on an extra bedroom or garage, but this is more affordable and attainable when purchasing. This gives you space for a:

• Home office
• Home gym
• Library
• Craft room
• Studio

This can save you money from membership fees or renting out office space. For people that plan to kickstart a hobby in their life, having extra space is a huge benefit of owning a house. Homeowners, especially after COVID, value hobbies and social time more. They are willing to invest more in those types of things if that increases their overall happiness.

Cons of Owning a House

Understanding the downsides of owning a home is important to making an educated decision and determining if the time is right.

Depending on the Market

When you purchase a home, you’re stuck trying to find the right time to buy, and the same goes for the potential sale in the future. Without proper guidance, you might purchase a home at a much higher price than you would a few months down the line. This is less likely when working with professionals who know how to sell your house fast and for a fair price.

Higher Upfront Costs

Closing costs usually sit between 2 to 5 percent of your purchase price. This includes:

• Fees
• Property taxes
• Mortgage insurance
• Home inspection
• First-year homeowner’s insurance premium
• A title search
• Title insurance
• Prepaid interest on the mortgage

In most cases, it takes 5 years to recover these costs. Once you are settled in your home, it can be -challenging to keep up with your bills and expenses.

Many people, once faced with several mortgage payments, must sell after falling behind on house payments. The combination of high upfront costs mixed with expenses upkeep costs makes owning a home difficult.

Waiting for Equity

While equity is a major benefit of owning a home, you need to wait a while for it to grow to a substantial number. Most of your early payments go to interest on your loan, and you won’t gain much equity during this time unless the property value of your home skyrockets.

You can offset this con by adding an extra $20 to $50 to your principal each month, but you’re still stuck in the waiting game.

Cost of Upkeep

One of the major downsides of owning a home is the responsibility to handle and pay for:

• Routine maintenance
• Emergency Repairs
• Property taxes

While some maintenance and repairs are possible as DIY projects, you’re best off leaving most electrical, plumbing, and structural repair to professionals. This means paying more for the care.

Tied to the Property

Purchasing a home may offer you more stability, but it means you need to think more before you just up and move. It takes more to prompt you to respond to an attractive offer, and then you need to figure out what to do with the home.

You should also consider the potential of continued costs as you try to sell or rent out the home. You may end up in a situation where you handle home payments and another mortgage or rent.

Risk of Investment

Any investment is risky, and buying a home is no exception. While most property values increase over time, there is no guarantee this will happen when you decide to sell. Your home may hold value or decrease over time, and you’re left at a loss.

You’re still in a better position than you are sinking money into a rental, but it’s a disappointing position to be in.

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