Making the move from living with others to renting your own home is the first step many of us take in establishing our independence. As time goes on, however, you may begin to debate whether you should continue renting or make the big move to homeownership.
Although every situation is unique, there are some common benefits to keep in mind when it comes to homeownership. So, as you weigh the pros and cons, consider these four reasons why you should buy a home.
BUYING CAN BE CHEAPER THAN RENTING
For many would be first-time homebuyers, the sheer cost of purchasing a home can seem intimidating. While it true that the upfront cost of purchasing a home will most likely be larger than a month’s rent this number evens out over time – usually the first five years.
Let dive into the example of a $200,000 home. Rent is usually between 0.8% and 1.1% of a home’s value, making it $1,600 a month at the low end of this example. To buy that home with an FHA loan requires a 3.5% down payment and, we’ll assume, an interest rate of 4.5% on a 30-Year Fixed-Rate Mortgage. On those variables alone, your mortgage payment would be $1,461 a month.
Though closing costs and the down payment may seem hefty, it’s clear that over time the lower monthly mortgage payments will negate those costs. After usually five years you’ll begin to see a higher and higher level of savings when compared to renting.
This scenario is isn’t unique and may very well apply to your current situation.
YOUR HOME’S LONG-TERM WORTH
The likely appreciation of your home within the first few years means it may be worth more than you purchased it for. If your home appreciates at 2% a year, for example, then over five years it will have appreciated by 10%. Looking at homeownership in this way makes it a long-term investment which you can gain rewards from in the future.
Possible tax deductions are another long-term cost to consider. There are several tax laws on the books that allow you to deduct the cost of the interest you pay on your home. Rent money, by comparison, is gone forever.
In many ways, your home may be worth much more than you pay for it making, it much more financially viable then renting.
BUILDING YOUR HOME’S EQUITY
The rent you pay every month is different from a mortgage payment. Your rent is paid to directly to your landlord while your mortgage payment is paid to yourself in the form of equity. Equity is the portion of your home’s fair market value which you own directly, outside of any liens or outstanding mortgage balances. The more you pay towards your principal to more of your home’s market value you have access to.
Increasing your equity opens up the door to several options. You can:
- Keep more of the proceeds from a sale or your home
- Turn that equity into cash through a refinance
- Pass that value on to your family, helping to create generational wealth
Building equity can be an investment in your future financial stability.
This benefit to homeownership may be the most important and only you can judge if it’s the right moved. The common refrain from renters is that they can move to a new location if they like, but that loose connection to a community might be a liability when you’re ready to set down roots. You may be ready to do just that if you:
- Decide to start a family
- Are committed to your location-specific job
- Want to build a feeling of continuity in an area you love
This stability also has practical implications. Rent generally increase at the end of your lease, and in many states, there is no maximum amount to how much landlords can bump up your rent by. The stability of a home means you can better plan out your budget without second guessing where your money’s going.
Ownership also means the freedom to change your home as you see fit. Most rentals have strict rules concerning modifications making even a paint job an ordeal. When you own, however, that your changes can be as cosmetic as a paint job or as structural as a whole new bathroom.
HOMEBUYING SOLUTIONS ARE IN REACH
A major challenge for those thinking about getting their dream home is the buying process. They may believe that the cost makes it impossible, or that their current financial situation or credit history places homeownership into their far future. The truth is that the ease and affordability of purchasing a home depends on your Mortgage Loan Originator.
An experienced Homebridge Mortgage Loan Originator will be able to assess your goals and offer loan options and products that fit your budget and your needs.
- Conventional – Private loans, with many having low down payment minimums of 3%.
- FHA loan – Insured by the Federal Housing Administration for borrowers with less-than-perfect credit scores and debt history.
- VA loan – Backed by the Veterans Administration and offers home loans that don’t require down payments.
- USDA loan – Issued through the U.S. Department of Agriculture (USDA) loan program and offers zero-down payment and lower interest rates for rural and suburban properties.
Your Homebridge Mortgage Loan Originator can walk you through these and other programs, educate you on your options and offer a clear, stress-free path to making your dream of homeownership a reality.
Contact Homebridge today to learn more about the benefits of homeownership and how we can make it happen!