Owning VS Renting a house is a quandary that deserves further consideration. Which is the best course of action? We began this discussion earlier this month. We discussed some advantages of renting Vs buying a home, in Part I. Now we will discuss the other side of the option with the pros and cons of owning.
Exploring the Options: Owning VS Renting
Palm State Mortgage knows it is a major decision in your life. And as we previously said, it will affect every aspect of your life. So, this week we continue our exploration of the Pros and Cons of Home-ownership. Here are more myths and facts about why you should or should not buy a home.
Owning VS Renting: Dreaming and Reality
On one hand, you have the pride of ownership. You can proudly say, “This is my castle. It’s my little piece of Heaven. Here, I rule.” On the other hand, owning a home is a definite commitment. Deep down, every homeowner knows he or she can’t control every aspect of owning a home. Fire, flood, storms, normal breakage, and finally, old age are only a few of the uncontrollable factors.
I used to think that I would like to concrete my yard and paint it grass green. As a result, I would never have to mow again. In truth, I would have to have the approval of the City and the local Neighborhood Organization. There really are rules you must follow, even in your castle.
Misleading Wisdom: Tax Deduction
Just as misleading as “painting your yard green,” is this misleading wisdom. “Buy a home and get the tax deduction.” It’s true that being able to deduct the interest and property taxes related to your mortgage can reduce your taxable income. However, most of the deductible interest occurs only in the early mortgage years. This is also only an advantage if you itemize taxes. However, the recent increase allowed in the standard interest deduction reduces the number of people who can itemize.
Additionally, if you do itemize, your savings are small. For every $1 you spend on interest, your tax savings are only about 25 cents. So, tax deductions are really not enough reason to buy a house. Also, as you pay off your mortgage, the savings get smaller. The reason: the interest and tax break becomes less with each payment as the amount paid on the principal grows larger.
However, it is also true that individuals who rent do not have any tax breaks. Still, like all other taxpayers, they can still utilize the standard deduction.
Questions and Answers to Help You Decide if You are Ready for Home-ownership
Below are a few questions to help you answer the question, Do I really want to buy a home? Am I ready?
- Do you like or have to travel frequently?
- Do you like to sleep-in late on non-work days?
- Evening and weekends: Do you enjoy having the time to do as you please? Watch a football game or take an afternoon nap.
- Or, are you just as happy to have a home project to occupy some of your time?
For some, the time and commitment involved with owning a home may be too much. It could be more than you want to take on. The fact is things around the home do break.
- The toilet does get stopped up. If you are a do-it-yourself person, you might take care of the problem your self. Or you might need to schedule a plumber. Either way, you have to spend time fixing the problem.
- Paint on the bedroom wall starts peeling.
- The bathroom faucet leaks and keeps you awake.
- The post on your privacy fence deteriorates and the fence leans and threatens to fall down.
- There may be dues to pay the home-ownership association and more responsibilities.
Fact: there are going to be repairs and maintenance that require immediate or almost immediate care.
Of course, if you rent, you can always call the landlord. He will eventually have the problem fixed. “Eventually.” and the repairs aren[t always completed the way you think they should be and the results may not be what you hoped. For example:
- After being repaired, the roof still leaks.
- The pilot lite on the kitchen stove still refuses to work properly.
- The new wall-paper begins to peel.
The old saying, “If you want it done right, do it yourself” is often true.
Owning VS Renting: Pros and Cons of Ownership
The truth isn’t a universal one. Owning Vs Renting: Ownership is not necessarily better than renting, no matter what your bank or realtor says. Likewise, renting isn’t always simpler than owning. Being a home-owner does have certain advantages such as pride in “your little kingdom.” Some of these “pro’s” for home-ownership are tangible and some are not.
Owning your own home might include pride in belonging to a community, the pleasure of ownership, and a sense of stability. Money can not always measure such things.
- However, if you are a wanderer and you always want to see “what’s over the next hill, it may not be for you.
- Real estate is often considered to be an illiquid asset. By “illiquid assets, they mean “a stock, bond, or other assets that cannot easily be sold or exchanged for cash without a substantial loss in value.” A home is this type of commodity. It is sometimes difficult to get the full monetary value if you need to sell in a hurry.
- Your home may appreciate in value. For example, one couple purchased a house in 2013 for $145,000. Then, in 2019 the same house was valued at $175,000. Wonderful. That’s a $30,000 profit. However, the opposite is also possible. You might not be able to sell when you want if the housing market is down. And even if it’s up, there are transaction costs when you sell.
- This also means changing your mind about where you want to live can be far more expensive if you must leave the home you own.
- The overall cost of homeownership tends to be higher than the overall cost of renting. This is true, even if the monthly mortgage payment is similar to the monthly cost to rent.
Additional Owner Expenses
And there are some expenses you may be spending on as a homeowner that you don’t have to pay as a renter. Palm State Mortgage wants you to be aware of all the facts behind owning your home:
- property taxes
- trash pickup
- water and sewer service
- repairs and maintenance
- pest control
- tree trimming
- homeowners insurance
- pool cleaning (if you have one)
- lender-required flood insurance, in some areas
- earthquake insurance, in some areas
Perhaps the biggest expense is mortgage interest. Mortgage payments are almost all interest for several years. Consider this case: You borrow $100,000 at 4 percent for 30 years. Your first monthly payment will be $477.42. $333.33 is the interest payment and $144.08 is principal. How long will it be until the monthly payment is more principal than interest? It will be for about 13 years. That means you’ll spend a total of $71,869.51 in interest.
Once you add up all these costs, you might find that you’re better off financially by renting and investing, As a result, the money you would have put into a home can go into a retirement account.
The Bottom Line: What Do You Want?
Which option is best for you isn’t just about money. It’s about what makes you happy. And it’s also about comfort and your vision for your life. If your dream of heaven is a small piece of land with a cottage and a white picket fence, Remember Mark Twain’s words and go for it: