Preparing for Homeownership - Step Two

DETERMINE IF HOMEOWNERSHIP IS REALLY RIGHT FOR YOU

You may think you would like to own your own home, but have you carefully weighed the advantages of homeownership against its disadvantages? For some, paying rent is preferable to the financial burdens of owning a home. Following are some of the points to consider when it comes to owning a home versus paying rent:

 
 
WEIGHING THE ADVANTAGES OF HOMEOWNERSHIP
There are a number of benefits to owning a home. Among them is the opportunity to build “equity.” Equity is the portion of your home’s value that you own “free and clear.” Equity is calculated by subtracting the amount you owe on the home from the home’s actual value. Home equity can help secure future loans for events such as college, major home improvements, or business loans.
 
Here’s an example of how to calculate equity:
Appraised value of home:
  
$100,000.00
Amount owed on mortgage:
 
- $65,000.00
 
Amount of owner’s equity:
  
= $ 35,000.00
 
 
Another key benefit of homeownership is the ability to deduct mortgage interest and property tax on income tax returns. (Borrowers should consult a qualified tax advisor to determine their specific tax benefits). Some of the less tangible benefits include the sense of personal control and sense of belonging to a community that comes with owning a home.
 
 
WEIGHING THE DISADVANTAGES OF HOMEOWNERSHIP
Owning a home is not ideal for everyone. With homeownership come a number of challenges. For example, the first year or two of a person’s mortgage are usually the toughest. Often, it is during this time that the majority of a new homeowner’s cash is tied up paying for rehabilitation, repairs, or furnishings. Paying for plumbers, electricians, and other skilled workers can add up quickly.
 
If homeowners want to break even from closing and down payment costs, they should plan to stay in the home at least three to five years. Homeowners have far more responsibility for their homes than renters. Additionally, homeowners experience greater financial risk due to real estate market fluctuations, increases in property taxes, etc.
 
 
WEIGHING THE ADVANTAGES OF RENTING
Renting a home is the ideal situation for a number of people. There are a number of advantages to paying rent versus owning a home. Renters have fewer financial responsibilities for maintaining appliances, repairing their homes, or keeping up the condition of the exterior and interior of the residence.
 
Renters often enjoy greater amenities, such as swimming pools, exercise rooms, cable television, party rooms, kitchen appliances, etc. Often, first-time homebuyers have to wait quite a while before they can afford to purchase these amenities.
 
Renters do not experience the same financial burden that homeowners face. A typical rental deposit does not exceed one month’s rent, and is therefore considerably less than the 3.5 percent of the sales price on a house that is often required as a down payment. Rent may fluctuate at the end of the lease, but renters do not have to worry about emergency repairs such as a broken gas line or broken water heater.
 
Renters need not be concerned with greatly fluctuating real estate markets. The market may result in increased rent, but landlords cannot increase rent before negotiating another lease. In comparison, a homeowner can lose thousands of dollars if the real estate market fluctuates greatly.


If renters do not like the neighborhood, the city, or their neighbors, they can easily fix the situation by moving. While renters must follow the terms of their leases, providing a 30-day notice can make moving possible.

 
  
WEIGHING THE DISADVANTAGES OF RENTING
For many, paying rent is a transitional phase until the renter can afford his or her own house. Renters do not build up the financial security that comes with home equity. Additionally, renters do not receive tax advantages. Homeowners can deduct their mortgage interest every year from their taxes. Renters do not have similar options. Renters are also limited in their ability to alter their housing to their needs or desires. A homeowner, on the other hand, can do basically what he/she pleases according to building codes and city zoning. Another disadvantage to renting is the possibility that landlords can increase the rent on a regular basis.