The Pros And Cons Of Buying A House

Buying a house will likely be the biggest investment (with ample rewards) that you’ll make in your lifetime. Looking to learn more about the potential benefits that accompany homeownership before you decide whether to buy? Here are some of the main benefits of buying a home:

Investing And Building Equity

Think of it this way: Instead of paying your monthly rent to a landlord or corporation, you can start buying into your own home equity. Consider your house a long-term piggy bank. As you build equity, your home value increases. You can also cash-out refinance a portion of your home equity if your family falls into debt or the kids need help financing their college degrees.

The best-case scenario may be that you pay off your fixed-rate loan within 30 years as planned and enjoy your retirement with much lower monthly expenses. Buying is arguably much more attractive than paying landlords rent money until the bitter end.

Whether you decide to sell your starter home in 5 years or plan to downsize in retirement, you’re likely to walk away with a profit from just living there and waiting for the market to appreciate in value. Plus, that capital you make when you sell your house may qualify you for a capital gains exclusion, allowing you to enjoy that income tax-free. Speak with an accountant or tax preparer if you’re unsure what you qualify for.

If homeownership is so ideal, then why isn’t everyone doing it? There are several reasons why some prefer renting, and the more you learn about the challenges, the less daunting they might seem.

High Upfront Costs

It used to be that a 20% down payment was the biggest barrier for renters to become homeowners. The industry has changed so drastically that the 20% down payment is widely regarded as a myth. Today, you can qualify for a mortgage with as little as 3% down. There are even a couple of government-backed zero-down mortgages that require no down payment. Granted, the lower your down payment, the higher your monthly interest rate and monthly mortgage insurance payments, but it gets your foot through the literal door of your first home.

Other upfront costs to save for include closing costs to your lender, which typically amount to 3% – 6% of the total loan. So, if you’re planning to buy a $100,000 home, you should expect to save at least $6,000 to $12,000 to cover upfront costs once you factor in the down payment as well.

Maintenance And Repair

While you’re deciding if you should buy a house, don’t forget about the upcoming costs. Predicting maintenance costs isn’t an exact science, but it’s always better to be prepared than caught off guard with a costly, emergency repair.

A good rule of thumb is to set aside 1% – 3% of your home’s purchase price annually in order to cover home maintenance and upkeep. However, you may want to set aside a bigger percentage for the upkeep of an older home.

Although you may be thinking about saving money for a down payment on a home, it may be a good idea to be sure you have plenty of money to cover the costs of repairs throughout the year.

Property Taxes And Other Regular Fees

As a homeowner, you can expect to pay a variety of fees. Your lender may charge some of these fees monthly and put them into an escrow account to prevent you from the headache of paying large sums at a time. Some of these regular fees may include but are not limited to:

• Property taxes: Property taxes are what help pay for local services like roads, schools and fire department services. Your lender will likely include this in your monthly payment to go toward your escrow account.
• HOA fees: If you’ve purchased a condo or townhouse that operates under an HOA, you can expect to pay HOA fees that help pay for community amenities like a gym, pool or security system.
• Utilities: Landlords may cover some utility costs, such as trash collection or water. As a homeowner, you not only need to cover these costs yourself, but utility bills will likely be more expensive in a larger home than in an apartment.
• Homeowners insurance: Lenders will often require proof of homeowners insurance to be sure that your home asset will be protected. Homeowners insurance typically covers dwelling damage and liability damage. Your lender will likely include this in your monthly payment to go towards your escrow account.
• Private mortgage insurance: Your lender may require you to pay private mortgage insurance (PMI) if your down payment is less than 20% of the purchasing price on a conventional loan. PMI helps protect the lender in case you default on a payment. Once you’ve reached 20% equity in your home through regular mortgage payments, you can request to stop paying PMI fees.

Less Flexibility

Home buying is often tied with “putting down roots” for a reason. If you’re making the switch from renting to buying, or considering opting for a rent-to-own agreement, keep in mind that the process of selling your home can take months or even longer depending on the housing market. That can make it harder to respond to starting a dream job across the country or moving closer to home to care for older parents.

You need to be prepared to metaphorically root yourself to your home for at least 5 years if you expect to make any capital from selling your home. That said, you may have the option to lease the home to head out on short-term trips. Regardless, expect a more complicated moving process than moving out of a rental.

With the pros and cons of buying a house in mind, is it a better idea to make the investment or keep renting? Deciding whether to buy or rent is a big decision, so let’s look at some of the pros and cons of renting, too.

Only you can know if homeownership is right for you. Make sure you spend time evaluating the pros and cons of buying a house and everything that comes with homeownership before you decide what’s right for you.

If you determine that buying a house is the right move, start your mortgage application online with Rocket Mortgage®.