For many of us, purchasing our own is the fulfillment of our ultimate dream, but for others, it could be the American dream. For others, it could be their worst nightmare. As you can see, this is definitely one of the biggest financial decisions one can make in his/her life. That is why it is very important to consider the pros and cons of buying a home before going on with such a decision.
List of Pros of Buying a Home
1. It allows you to build your equity.
When you buy your own home, you can build equity, which is the amount you get from subtracting the amount of your home loan from the total value of the property. Basically, this is the dollar value of your house that is actually yours. By making mortgage payments each month, you will get a portion of it, which directly goes towards reducing your loan amount, increasing your equity. And as your home increases its value, so is the equity. In a sense, paying your mortgage or boosting your home’s value is a form of savings, as either of these actions will help you build your equity, which you can tap into if you need money in the future. This means that you will be able to borrow against it to meet various financial needs, such as medical expenses, home improvement, educational expenses or high credit card payments.
2. It gives you the freedom to make your dream home.
Home ownership will provide you freedom to create the living space that you have always dreamed of. This means that you will be able to do all the things that make it your home, such as making changes to the floors, painting rooms with the colors that you like and owning your own pets, without having to get approval from a landlord. But if you are renting, it will be less likely to enjoy these perks, while you worry about the future increases in your rent, as it would normally raise at certain periods.
3. It allows you to build a strong credit history.
Buying a home on a loan and consistently and timely making your monthly payments makes the risk of defaulting the loan low and demonstrates to lending institutions that you are a good borrower, thus giving you a strong credit history. Remember that this attribute will be very useful in the future when you plan on taking out other loans for your other needs, such as a car, home improvement project or other major expenses.
4. It provides you with significant tax deductions.
Home ownership can lessen the amount of payments you are going to make for your income taxes every year. There will be many things that may be deducted from your federal and state taxes, including mortgage interest payments, property tax payments, loan discount points and certain closing costs. During the early years of your mortgage, when the bulk of the payments are represented by interest, tax deductions will give you back a substantial amount of money.
5. It is a good investment to make.
As home prices move in cycles over the short-term, your home could increase in value if you stay in it for a long time, while maintaining and, better yet, improving it. This will give you a significant return on your investment.
List of Cons of Buying a Home
1. It requires repairs and maintenance on your end.
The reason why some people hesitate buying a home is that they are afraid of the responsibility of maintaining and repairing it. When you rent, you will be able to enjoy having free handy-man services, such as plumbing and heating and cooling repairs. But as a homeowner, you will be responsible for paying these costs out of your pocket or even doing the repairs yourself. So if you do not like such a responsibility, you might be better off living in a rental apartment or condominium, where many of these requirements will be taken up by the apartment or condominium association.
2. It comes with the possibility of foreclosure.
By definition, foreclosure is the selling of a mortgaged home or any property by the lending institution after the borrower has failed to make the timely and consistent monthly payments, which means that mortgage has defaulted. Now, if it happens that you will be late or miss paying your bills then and again, then your lender might take your home away. Also, mortgage payments represent a huge financial obligation that extends over a long period of time, which can definitely affect your bottom line heavily. Now, this is certainly an intimidating factor if you do not exactly know where you are heading to. Remember that banks can foreclose on your home regardless of your income if you fail to keep up with your payments, resulting to the loss of your investment and a poor credit rating.
3. It decreases your mobility.
As a home owner, you cannot move right away from your house, as you need to sell it, which can be a daunting and frustrating process especially when you are in a hurry. Typically, it would take several weeks or months just to find a potential buyer and close the deal. So, if you are expecting to be transferred to a new location for your job, it might not be the best time to buy a home for yourself. But by renting, you will have the flexibility to move right away after writing your landlord a little notice.
4. It comes with a high cost.
Home ownership can truly put a considerable strain on your finances. Aside from the mortgage payments you are required to make on a monthly basis, you must also have to pay for property taxes and upkeep expenses.
Now, when you plan on buying a home, there will be a lot of questions that will come to your mind, such as those related to your needs, income, time of stay, responsibility, finance and many more. However, by weighing down the pros and cons listed above, you will have a good idea if it is a good investment to make, or not.
Brandon Miller has a B.A. from the University of Texas at Austin. He is a seasoned writer who has written over one hundred articles, which have been read by over 500,000 people. If you have any comments or concerns about this blog post, then please contact the Green Garage team here.