The Pros And Cons Of Buying A House: What Should You Consider?
Owning a home has many advantages as well as some disadvantages, so how can you be sure it’s the right choice for you? By evaluating your personal goals, you can better determine if you would benefit from homeownership now or in the future.
Let’s look at the pros and cons of buying a house, plus some additional factors you’ll be wise to consider before beginning the home buying journey.
What Are The Pros And Cons Of Buying A Home?
For most people, finances are the key factor in renting versus buying a house. While you might assume renting is more affordable than purchasing, this isn’t always the case.
In 2021, the National Association of REALTORS® (NAR) conducted a study showing that after 6 years a homeowner’s monthly payment is generally lower than a renter’s. And, if you factor in the tax benefits of owning property, a homeowner could have a lower monthly payment in as little time as 3 years. That means owning your home could save you money after a relatively short period.
On the other hand, renters don’t need to worry about paying closing costs, a down payment or long-term expenses like property taxes and homeowners insurance. There are also other perks of not owning a piece of real estate. Renters don’t need to sell their home before moving, and they’re not responsible for maintenance and repairs.
In other words, both renting and buying come with benefits and drawbacks. To find the best option, you’ll need to set your financial goals and decide on the type of lifestyle you want. We’ve put together a comprehensive list of the advantages and disadvantages of buying a house to help you determine if homeownership is the right choice for your situation.
The Pros Of Buying A House
Along with the eventual cost savings of owning a house are additional advantages of a home purchase. Be sure to carefully consider how much of a benefit each would be to you.
In most cases, renters sign a lease that lasts only 1 year. Sometimes the property owner may offer a longer term, but renting is fairly short-term compared to owning a home. If you’re someone who likes staying put for a while, buying a home could be an excellent option since you won’t be limited to a short-term contract.
A homeowner can keep their property indefinitely, as long as they’re up to date on their mortgage payments and property taxes. And if you pass away, you can transfer ownership of the property to your heirs.
Potential Return On Investment
With each mortgage payment, you build home equity that you can eventually convert into cash if you wish. With a home equity loan or home equity line of credit (HELOC), you’re able to leverage your equity to fund home improvement projects, consolidate your debt or invest in another piece of real estate.
You can also cash in on your equity by selling. If you decide to move, you might have a chance to earn a profit – especially if property values have increased in your area. Just keep in mind: You might have to pay a capital gains tax.
Even though you have to pay more taxes as a homeowner, certain tax benefits can help you offset the cost. For instance, you could write off the interest you’ve paid on your mortgage if you itemize your deductions.
Homeowners can also deduct property taxes on their returns. This benefit might not sound like a significant savings, but you can reduce your taxes by up to $10,000. If you’re married and filing separately, you can claim up to $5,000. Note that these are the deduction amounts allowed for the totality of your property taxes, state and local income taxes, and any sales taxes.
Since you own a home and you’re not accountable to a landlord, you can in most cases change your property as you see fit. That means you can renovate your kitchen, paint the walls and add landscaping. You can even build an addition – as long as your homeowners association is agreeable.
You can also decide who lives in your home. Many rental properties limit the type or number of pets you can have. But as a homeowner, you choose whether to own a dog or cat, and you don’t have to face a potential pet deposit.
A Sense Of Community
For some buyers, owning a home that’s a part of a close-knit community can offer emotional benefits that renting doesn’t. Whether you live in the suburbs or a city, you’ll probably have neighbors who can lend you a hand if you need help.
A sense of community can also be a significant advantage for couples with children. Being around homeowners with a similar lifestyle can be a great way to find lifelong friends.
The Cons Of Buying A House
Unfortunately, home buying has certain disadvantages that can make it less attractive to some people. Below, we’ll look at some of the potential downsides to homeownership.
Higher Initial Costs
As mentioned, the cost of buying a home includes more than just a down payment. You’ll also have to pay closing costs, which include a variety of expenses such as origination fees, the home appraisal cost and title insurance.
Alternatively, securing a place to rent may only require a deposit and the first month’s rent, or just one of the two. Compared to home buying costs, the upfront expenses of renting tend to be low.
Lack Of Flexibility
Although owning your home means more freedom, it can also mean less flexibility. When you rent, you can simply wait until the lease ends and find a new place to live. With a house, you’ll need to rent it out or sell it when you buy a new home. It’s not as simple as packing your bags and moving elsewhere.
If you decide to sell, it can be a time-consuming process. You’ll likely need to stage your home, take pictures, place it on a multiple listing service (MLS) and then wait to receive offers. This process is worth it for many people, but not everyone likes the feeling of being somewhat tied down.
Increased Financial Responsibility
Like any type of loan, a mortgage is a serious financial commitment. If you default on your home loan and miss payments, your credit score could be negatively affected. Defaulting on a mortgage also means your lender could foreclose on your home, further damaging your credit.
Along with making your mortgage payments, you will pay property taxes and need to purchase a homeowners insurance policy. Depending on the loan type, you’ll also pay mortgage insurance unless you make a rather large down payment. All of these expenses can noticeably increase your monthly payment.
Continued Maintenance And Repairs
Along with monthly mortgage payments – which are typically rolled together with the cost of homeowners insurance, property taxes and, potentially, mortgage insurance – you’ll inevitably face home maintenance and repair costs.
For example, if an appliance breaks, you’ll pay the full amount for the replacement out of pocket unless you have a home warranty. And if you decide to pursue any home improvements, you might discover issues that increase the cost of your project.
Additional Considerations To Make Before Buying
Understanding the pros and cons of buying a house will help you determine whether to move forward with the home buying process. However, you should also consider the following factors:
- Your credit score: When you apply for a home loan, your lender will check your credit score and payment history to determine your interest rate and loan term. Before you fill out an application, you should acquire a copy of your credit report to verify you have a high enough credit score to buy a house. You can also check your report for inaccurate information or outstanding accounts that need to be paid.
- Your job security: As part of the underwriting process, your lender will evaluate your employment history. Most lenders prefer that a borrower has worked for the same employer for a minimum of 2 years. So, you might need to wait before applying for a mortgage if you’ve recently changed jobs.
- Your debt: By calculating your debt-to-income ratio (DTI), lenders also see how much debt you have compared to your earnings. You can check your DTI by totaling your monthly debt payments and dividing the sum by your gross monthly income. If your DTI exceeds 43%, you may need to pay off some debt or increase your income.
- The current real estate market: The local housing market will affect your search for the perfect home. To get an idea of what’s happening in your area, talk with your real estate agent about recent trends and predictions.
The Bottom Line
Deciding whether to buy or rent can be difficult if you’re unsure of how owning real estate can benefit you. Thankfully, thoroughly evaluating the pros and cons of buying a house can help you make an educated decision on whether this is the best move for your personal and financial needs.
To continue your homeownership journey, get started on the approval process today and see what interest rates and terms you can qualify for.