You’ve been told by everyone around you that you should buy a home. They say renting is just throwing money away, and buying a home is the only smart move you can make because owning is a good investment. Problem is, you’ve lived through the real estate bubble and the crash of 2008. You know that owning a home can be a very bad decision.
Here’s how to decide whether now is the time to buy, or whether you should just keep renting.
Advantages Of Owning A Home
If you’re on the fence about buying a home, know this: there are some advantages to buying. Some of them are financial, some not. Before buying a home, consider how the purchase will affect your finances and lifestyle. It makes sense to review all the advantages and disadvantages before making a big commitment.
OK, so the advantages include:
- Greater privacy — You don’t have to put up with your landlord’s baloney.
- Equity — This is a big selling point; you’re buying an asset that appreciates over time and can be later sold for a lot of money. In some cases, you can turn a profit if you decide to sell in the future.
- Costs — The mortgage costs are predictable. Your mortgage loan payments won’t go up, unlike your rent.
- Tax deductions — Your interest is tax-deductible. ‘Nuff said.
- Pride — This may or may not be important to you; some people are proud to be homeowners.
There are a lot of disadvantages to owning a home, including:
- Variable maintenance costs — You won’t always know what will break, and how much it’ll cost you. Water heaters are not cheap, but roofs are even less cheap. And, everything on a home wears out; Electrical wires fray, roofs sag, plumbing leaks.
- It’s A Commitment — Some people aren’t ready for the commitment. It’s 30 (or more) years of mortgage payments. The other commitment is a geolocation one. You can’t easily move out of your community if insufferable neighbors move in.
- Higher payments — While it’s true that mortgage payments don’t go up, they’re usually higher than rent payments to start out. So, you’ll probably end up with higher payments overall.
- There are no guarantees on equity — You already know this; the equity might evaporate in a real estate market crash, and you could lose your equity.
With that said, it’s still a good idea to check out this page from Bridgfords and see what a new or used home fetches. It will give you a better idea of what you get for the money. Sometimes, the higher quality fixtures or maybe the plush back yard is enough to get you to make the switch.
Advantages of Renting
Your alternative to buying is renting. Now, before you go thinking that renting is the be-all-end-all, let’s discuss both the upside and downsides to it.
First, the advantages:
- You have no responsibilities — You don’t have to take care of the grounds (usually), you’re not responsible for the taxes or the maintenance. You just live there.
- It’s cheaper — Your payments tend to be lower than buying a house. Plus, you don’t have to front the money for a down payment and all associated closing costs.
- Flexibility — You’re not tied down to a place for more than a year, maybe 6 months. With 1 year leases, you can leave anytime you want. You just have to give your landlord notice.
Now for the disadvantages:
- No tax break — You don’t get a write off on your taxes for the interest you pay on the mortgage because you don’t have one. Of course, the rent you pay goes toward the payment of the mortgage for the landlord, so he get the tax deduction from your rent. Meaning, you’re subsidizing your landlord’s taxes.
- No fixed costs — The landlord can raise rent per the stipulations in your rental agreement. And, you have no recourse.
While renting does have its advantages, the biggest disadvantage isn’t always financial. Sometimes, the biggest disadvantage is the landlord. Because you’re renting from someone else, you must trust in that person to maintain the home, not fall behind on his mortgage or taxes, and not raise the rent on you. Plus, you have to follow his rules so, in a way, it’s kind of like living at home again except you have a bit more freedom.
The major disadvantage with the home buying scenario is the sheer cost of it all, and those costs never stop.
Bottom line: buy a home when you can’t stand your landlord and you just want to own the house. Keep renting if you’re not ready to make the commitment.
Emma Harris has worked in real estate for many years. With grown kids of her own the plight of the Millennial is at the front of her mind; she enjoys writing articles to help people make the right housing decision for them.