Buying a home is a big investment and an important responsibility. But owning a home also makes you feel like you’re part of a community and proud to have a stable environment to raise a family. And if handled correctly, a home can add to your long term wealth should you decide to sell it down the road.
In this home buying guide, you’ll learn key aspects about the buying process. Specifically, I’ll cover the pros and cons of renting versus buying a home, things you should consider before purchasing a house, different types of mortgages, whether to get pre-approved or pre-qualified for a mortgage, choosing the right home for you, alternative sources to finding deals on homes, and how to make an offer. When you’re done, you should have the tools to find a great home at a reasonable price with confidence. Let’s get started.
I’ve been on both sides of the renting vs buying a home issue. And I can tell you that it’s not as cut and dry as you might think. Currently, I own a home, but I rented an apartment for many years.
In this article, you’ll gain an understanding of the reasons for and against renting versus buying. This information should give you the foundation on which to make a decision on the direction you should proceed. You can use a rent vs buy calculator, but you shouldn’t rely on the results without also considering these reasons.
Reasons to Rent a Home (or Apartment)
– Allows you to save money – When I was renting an apartment, I actually loved it. The rent wasn’t high and I didn’t have to worry about property taxes, homeowner’s insurance, or any of that other stuff. So, I was able to sock away a bunch of money in my saving and investment accounts.
– Not responsible for major repairs – Okay, if the lightbulbs go out, it’s your responsibility to replace them as a renter. But if water pipes burst behind walls or the roof caves in, getting those repairs done is not your responsibility. It is the property owner who must contact and pay a professional service to do the work. Some repairs can cost many thousands of dollars.
On top of that, if you’re not able to live in the home or apartment while it’s being repaired, you don’t have to pay rent for that period of time.
– Don’t have to worry about paying mortgage interest – Did you know that for a 30-year mortgage, the first 5 years of payments are nearly 100% interest? That means almost nothing has been paid to reduce the original principal that is owed.
Yes, you can get a small tax benefit by deducting the interest on your tax return. But even then, this will only occur after meeting certain deduction thresholds.
– Don’t have to worry about paying thousands of dollars for homeowner’s insurance – Here in South Florida, my homeowner’s insurance is over $5,000 per year. And it’s not like I live in a mansion. I’m required to have this insurance because I have a mortgage.
But think about how much money that adds up to over 10 years. I can only imagine the amount of profits this money would earn if it were smartly invested elsewhere.
– Don’t have to come up with a big down payment – The initial costs of buying a home can be substantial. Many banks and mortgage companies require a down payment of at least 20% of the price of the home. So on a $200,000 home, the down payment would be 40,000. Plus, you’ll have to have enough money to cover other closing costs and fees.
Reasons to Buy a Home
– The equity in your home will grow – The longer you stay in your home, the more valuable it will become. Historically, over the last 100 years, the rate of appreciation has been a little over 3% per year. So, if you purchase a home for $200,000 this year, odds are it will be worth about $206,000 next year.
So if you combine the natural home appreciation amount with the yearly reduction of the mortgage principal, in theory you would make a nice profit if you sold your home,
Now, this should not be misconstrued to suggest that it is a good idea to buy a primary residence as an investment in order to flip it in a few years to make a quick profit. That would be a bad idea. By the time you take into account your selling expenses and time. it wouldn’t be worth the effort.
– Pride of ownership – There’s no doubt, it feels good to have something that you can call your own. You can settle into a community without worrying about landlords or the potential for your lease being terminated.
Plus, you can paint the walls any color you like and make home improvements as you see fit.
In conclusion, there are a number of factors that must be weighed when making the renting vs buying a home decision. The right answer will depend on your own financial situation. What I will say, based on my experience, is that you shouldn’t feel pressured to buy a home. It’s great to have a place to call your own, but it comes with a lot of responsibility.
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