Sam Hoaster, Elevations Credit Union
The decision to rent or buy a home is an important one. When weighing your options, look at price, your lifestyle and the bigger picture. Here, we lay out the pros and cons behind purchasing a home.
PROS:
Tax benefits
There are many pros to buying a home, but perhaps none are bigger than the tax benefits. Tax breaks, a tax concession or advantage allowed by the government, can be rewarding to homeowners. These can include lucrative benefits, such as the property tax deduction and mortgage interest deduction. In fact, homeowners can deduct interest expenses on up to $750,000 of mortgage debt from their income taxes.
Equity
One of the biggest advantages of buying a home is purely building equity. Home equity is the current market value of your home, minus what’s still left on your mortgage. It’s an asset that comes from a homeowner’s interest in a home. For example, if the home you purchase gains in value and is sold for more than you paid, you make a profit.
Security & stability
Unlike renting, homeownership gives you a sense of security as long as your mortgage is continually paid. You become your own landlord without the uncertainly of lease renewals and price increases. This particular pro is helpful to people with children who want to stay within school districts, those who like stability within their neighborhood or professionals who live near their work. Purchasing a home can help dodge any undesired disruption to your way of life. Best of all, owning a house means making your own rules. Barring any city or HOA policies, you have freedom when it comes to home improvements, pets, company and guests, and renting out the space.
CONS:
Cost
Ownership of a home comes at a large cost. Before taking the plunge, it’s important to fully grasp what this means. Not only will you need to make a down payment, but you should also consider property taxes, private mortgage insurance), homeowners insurance, and maintenance and repair costs.
Risk
Your biggest risk will be the hefty amount for the down payment. For example, imagine putting down $30,000 to purchase your property, and over the lifetime of your 30-year mortgage, the value of the home doesn’t increase. Your return, in this instance, would be nothing. While this does not take into account financial benefits such as the money you saved on taxes, it is a large investment to make nonetheless.
One of the biggest risks is the unknown. What if, for reasons out of your control, you are forced to quickly move and sell your home? Depending on the timeline between the purchase and your move, you might not earn back your closing costs even if you sell for the exact same price for which you bought.
Further cost risks include damage to the home itself such as foundation issues or the need for large repairs. It’s a good practice to have an emergency fund in place to offset these costs and to work closely with your real estate agent to find a reputable home inspector before the purchase of the home.
For more on the pros and cons of renting versus buying, including weighing your options on the rental side, visit the Elevations blog at elevationscu.com/mortgageblog.
By Sam Hoaster, Elevations Credit Union. Sam is a Mortgage Loan Originator at Elevations Credit Union in Boulder. If you have questions regarding mortgages, please call 303.443.4672 or e-mail [email protected].
