Owning your own home can make a lot of financial sense, but only if you are fully prepared for it.
There are a lot of potential advantages to owning your own home. First of all, home ownership allows you to build equity (cash value) in your home over the years, money that is likely to be repaid when you sell the house in 10 or 20 years. Home ownership also offers the promise of dramatically cutting your expenses later in life after your mortgage is paid off since you'll likely only pay real estate taxes and property insurance. Finally, the interest on a mortgage is tax deductible, potentially saving thousands of dollars per year versus renting, though you should check with your tax advisor.
Sounds like a good deal, right? But owning a home is not without risk.
While home values for the country as a whole have generally risen along with the general rate of inflation, real estate is primarily a local investment. This means the values in some parts of the state (and country) will go up while the values in other parts may decline in value. Over the past decade in North Carolina, for example, home values in larger cities have typically appreciated in value, but other areas have been left behind.
Owning a home means that you are responsible for all repairs, maintenance and upkeep – in addition to a mortgage payment. From mowing the lawn to painting the house to purchasing a new furnace, it’s all up to you. Especially if you are stretched financially with a large mortgage, finding the extra cash needed for unforeseen repairs can lead to financial stress and high interest credit card debt. As the equity in a home grows, homeowners are often able to take out low interest home equity loans to cover large expenses, but these low interest loans may not be available for several years after the purchase of a home.
There are often times when renting actually makes more financial sense than buying. If you plan to move within five years or so, the costs associated with maintaining and selling a home probably make renting a better bet. Or if the cost to own a home is significantly more than renting (50% more, for example), then renting may make more sense. And don't forget that the interest rate on a home loan is dependent on your employment history, credit score, amount you owe to other lenders, and the amount of money saved for your down payment. If these factors don't add up in a favorable way, you may not be able to get the loan or the loan could be prohibitively expensive.
Whether to buy a home or not is often a complex, personal decision that should be based on more than just financial considerations. But when the time is right, the benefits of home ownership for you and your family can be hard to beat.