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Pros and Cons of Buying a House

 

If you are ready to invest your monthly rent in a home of your own, there are many great reasons to pursue your dream. First, take a look at all the pros and cons to make sure buying a home will match your lifestyle and financial situation.

The Pros:

A Place of Your Own

Maybe you need more space for your family. Or you want a backyard. Maybe you like the community you live in and want the feeling of permanence and involvement that comes with owning your own home. Or maybe you just want to change the color of the walls without having to get permission. Owning your own home will give you all these things.

A Source of Equity

When you're a homeowner, your monthly mortgage payments serve as a type of savings plan. Over time, you accumulate what lenders call "equity," an ownership interest in your house that gives you more options:

  • Borrow against your home's equity with a home equity line of credit
  • Convert equity to cash when you sell
  • Use equity to make a larger down payment on your next home, giving you the possibility of lower interest rates and/or eliminating the need for private mortgage insurance.

No More Unexpected Rent Increases

While rents typically increase year after year, the principal and interest portion of most fixed rate mortgage payments remains unchanged for the entire period of the loan - even if that's 30 years from now.

One of Life's Better Investments

Houses typically increase in value over time. It's not unusual for a house that sold fifteen years ago to be valued at much more today. This increased value is as good as money in the bank to a homeowner.

Don't Forget the Tax Write-off

Homeowners are usually eligible for significant tax advantages that are not available to renters. Most important, the interest paid on your home mortgage, your local property taxes and even private mortgage insurance are usually deductible, so you have the opportunity to save a substantial amount each year in income taxes. Of course, you will want to consult with your tax advisor about your specific situation.

The Cons:

It's Expensive

Usually you can expect to pay more for housing as a homeowner than you did as a renter - especially for the first few years. Even if your mortgage payment is less than your previous rent payment, not only is there usually a significant up-front investment, but you also have to pay property taxes, homeowner's insurance and all the upkeep.

You Won't Be Quite As Mobile

Once you own a home, moving isn't as simple as giving the landlord your notice. If you anticipate a move to a new location within the next year or two, this might not be the ideal time to buy a house.

Now The Repairs Are Your Responsibility

Don't forget that mowing the lawn and taking care of needed repairs come along with home ownership.

Financial Risks

If you have an adjustable rate mortgage, your mortgage payments could increase if market rates go up. Or, if you choose an interest-only financing option, your payments will increase at the end of the pre-determined interest-only period. If real estate values erode, your investment may decline in value. And, because it's not a liquid investment, it's not as easy to convert to cash in an emergency (although home equity loans and lines of credit can help in these situations).

Foreclosure Risk

If you fail to keep up your payments, the lender can sell your property. This is called foreclosure and can result in the loss of not only your house but also your investment and good credit rating.