A question I get a lot in the housing world is what are the benefits of owning a home vs. renting? Whether you’re just getting started on considering home ownership, or you already have a home savings account in place, it’s important to know the ins and outs of home ownership before you make the leap.
Although becoming a homeowner might at first seem like a giant responsibility, it’s certainly filled with rewards. From building a community to having the creative freedom to make a space your own, owning a home can be an emotionally and financially fulfilling venture.
Advantages of owning a home
Let’s take a closer look at the advantages of owning a home vs renting and see how you can take the right steps to get there.
Homes tend to increase in value: You’ve most likely heard homeowners talk about how they purchased their home 20 or 30 years ago and now it’s worth this much. Because homes tend to increase in value over time, they can be seen as an investment. Rent, on the other hand, assures that you have a place to live, but the money spent isn’t exactly moving you forward in the same way.
Fixed-rate mortgage: One of the benefits of home ownership is that when you own, you don’t have to think about rental increases. Often when renting, depending on whether or not there is rent control, a landlord can choose to raise the rent when he or she pleases. When you buy a home, a fixed-rate mortgage means that your payment will not fluctuate. It will stay the same for the duration of the loan period. Not worrying about rental increases and equating a fixed house payment into your monthly budget, can ease your uncertainties and help you better plan for the future.
Find community: Whereas in rental units like apartments or condominiums, the turnover can mean a new neighbor moving in every year or so, home-owning helps to build community. Though community exists whether you’re renting or owning, you’re more likely to build community when you buy a home in a neighborhood. Whether it’s for block parties or an annual holiday gathering, community brings about a feeling of belonging and warmth.
Buying means a tax deduction: When you own a home, the interest payments can be a substantial portion of your overall mortgage payment. Luckily, when tax time rolls around, homeowners can deduct their mortgage interest on federal income taxes, giving them tax advantages. In addition, you can do a tax deduction on your property taxes and some closing fees. Being able to deduct some taxes is a great incentive for buying a home.
Make a space your own: If you’re renting, chances are your landlord won’t be too excited when you ask to rip up the carpet so you can see the old hardwood floors or redo the kitchen tile. As a homeowner, you’ll enjoy the creative freedom that comes along with making a space your own. You’ll never have to think twice again about whether or not you should really nail that shelf into the wall and risk getting your security deposit back.
Make an income: Whether it’s through Airbnb or renting out the guest room, owning a home means that you can consider unique ways to make an income off your property. In certain cities like San Francisco, it’s even popular to rent out a parking space to someone who works nearby.
Build your equity: Equity refers to the difference in the loan balance on your mortgage and the value of your home in a given market. Similar to a savings account, each mortgage payment that you make builds your equity and allows you to take out home equity loans in the future for needs, like renovations.
And the home is yours: When you rent, you have no way of knowing whether the landlord might decide to sell or move into the space on their own. Owning a home means that it’s yours, entirely. Whether you want to rent it out or build it up and add on, the choice is yours because the home is yours.
Tips for becoming a homeowner
Now that you’ve read about some of the benefits of being a homeowner, let’s take a closer look at ways to get you there.
From paying off your debt to saving for a down payment, here are some tips to becoming a homeowner.
Pay off your debt: One of the first things you’ll want to do before purchasing a home is to pay off your debt. When you’re debt-free and your credit is great, you’ll be more likely to get approved for the mortgage that will lead you to your dream home. Combat the debt to the best of your ability then move forward from there.
Save for a down payment: Saving a chunk of money for a down payment might at first seem like a monumental task. But you’ll start to notice, if you put away a bit every month and resist the urge to spend, the money magically does start to add up. If you’re saving for a down payment, consider staying in for dinner on the weekend or foregoing that extra coffee or cocktail when you’re out. When it comes to saving, small changes can make a big difference. In addition to a down payment, you’ll also want to ensure enough funds for closing costs, such as home inspection and home insurance.
Create an emergency savings fund: Owning a home means that you’re responsible for the maintenance, which may be quite an investment if you buy an older home. If a plumber is needed or the stove stops working, you can’t exactly call the landlord. It’s important to keep these out-of-pocket expenses in mind, as these finances will creep up. Before purchasing your home, ensure that you have a savings fund in place with a good chunk set aside for emergencies. Once you’ve established this, make sure you don’t spend it. It can be tempting when you’ve just purchased a new home to spend money on decor and furniture. Take it slow and rest assured that all things will come in time, and consider which improvements or purchases need to be made right away, and which can wait.
Talk to a mortgage lender: After you’ve saved up and you’re ready to move forward, talk to a mortgage lender to get preapproved for a loan and receive a preapproval letter. To do so, the lender will take into account your financial information and help prove that you’re ready to start on the journey towards homeownership. This is an important step, as when you find that right place, you’ll be ready to prove just how serious you are to the seller.
Find the right budget and the right place: One of the biggest, if not the biggest, parts to buying a home is to find the right place within your own budget. Maybe you’re in love with a spot along the coast, but it’s out of your price range. There could be a perfect place a little further inland that’s much cheaper and in line with your financial needs. It’s also good to consider what that place might mean for you in the future. If you plan to or already have children, consider the elementary schools and high schools in the area. If you’re quickly becoming an avid hiker, set aside time to hike the area and see how it feels. Maybe sure that you find a place that both works within your budget and serves your happiness.
Choose your agent wisely: When it comes to relationships you’ll build during the home buying process, perhaps one of the most important is the relationship with your agent. A good place to start is to ask friends and family in the area who they used when purchasing their home. It’s important to connect with your agent and make sure they understand and respect exactly what you’re looking for in a home.
Be flexible and open-minded: When purchasing a home, we tend to have a distinct vision of what we want. We might love the idea of a yellow French door, a picket fence, or an all-white kitchen. If you stay focused, but go in with flexibility and an open mind, you’ll be more likely to enjoy the process and find something you’re excited about. Remember that a little love and some do-it-yourself home projects can instantly make a house feel like a home.
Consider all the options: At the end of the day, when you’re purchasing a home, you want to make sure you do your research and consider all the options. What works for one person might not work for another. Maybe location is more important to you than the home itself, or vice versa.
If you’re unsure about whether to rent or buy and where, sit down with a pen and paper and make a classic list. Factor in costs, location, and neighborhood as well as the benefits of renting vs. buying. This will help you move through the pros and cons and realize what’s most important on your own unique home buying journey.
Still need support? I’m here if and when you need it, and I’d love to connect with you on your buying or selling journey.
Source: BHHS Cal Blog