What are the financial pros and cons?
Have you ever wondered if owning a home is the right decision for you? If you’re a millennial, you are not alone. According to the Harvard Joint Center for Housing Studies, more millennials are forgoing homeownership than ever before, even when the environment is favorable for first-time homebuyers. The reasons for this are plentiful, according to the study, but many millennials are just frankly afraid of committing to a home long-term. It is understandable, but buying a home might have more pros than cons associated with it and should be a consideration for millennials who have found themselves happily established in their careers.
Buying Might Actually Be Cheaper than Renting
Did you know that in some areas, buying a home may be cheaper than renting long-term? Lenders all agree that one should spend roughly 28% of their income on housing. This includes property tax, homeowner’s insurance, and principle and interest mortgage payments. In some markets, the price of homeownership, when tax breaks are factored into the equation, is substantially cheaper than renting an apartment. According to Investor’s Business Daily, mortgage payments are less expensive than rent in 42 states. Buyers in the state of Michigan, for example, could save $300 a month by buying a home rather than renting.
If You Are Staying Put for More than 5 Years, You’ll Build Equity
If you don’t plan on leaving the area for five years or more, buying a home will increase the chances of building equity. This means that if you opt for home financing, the money you are paying towards the mortgage can come back to you in the end when you choose to sell your home. Financially-savvy buyers may also want to buy a house that is cheaper than what they can afford, and pay more towards the mortgage, ensuring that they are paying less interest over the long haul. This can help when you are choosing to upgrade your home or buy a bigger one as your family expands. Having equity can also make it easier to have money for larger down payments that are needed for bigger homes in more desirable areas.
Buying Ensures You are in Control
Home financing comes with a lot of responsibility, but on the flip side, it offers owners security and peace of mind. Anyone who has lived in apartments over the course of their adult life knows that they are often at the whim of the property owner. Pet ownership, design decisions, and the landscaping choices are out of the hands of renters, meaning they feel less connected to their space. Owning a home allows the resident to form a bond with the home and put their own stamp on it.
Potential Cons to Keep in Mind
While there are plenty of positives to home financing, there are definite downsides that should be considered before you go out and look for the perfect place to land. Homeowners should be financially comfortable before taking on a mortgage payment. This means you should feel secure in your job/career path and have a steady income before you take on a large amount of debt. Experts also suggest that responsible homeowners should have a sizeable emergency fund before purchasing a home. Emergency funds should be large enough to cover expenses for six months.
Homeownership will also require you, the owner, to be responsible for repairs. If your water heater goes out, or the central air is on the fritz, it will be up to you, and you alone, to fix these problems. Because of this, homeowners should be in the financial position to make these repairs quickly; whether that is by way of savings or a credit line that allows for emergency situations.
Equal Housing Lender