First-time home buyers today have a median age of 32, and a median income of $72,000. But no matter where you fall on the spectrum of first-time buyers, sometimes, owning your own home just seems like the right move.
However, this is a big financial leap to take. You might be thinking about the benefits, from decorating to selling at a profit someday. But it’s also important to think about the risks involved before you take the plunge.
How does owning your own home affect your finances? Answering this question will go a long way toward finding out if homeownership is right for you. Keep reading to find out the financial impacts of buying a house!
Financial Advantages of Owning a Home
First, the good stuff: let’s take a look at the positive ways owning your home might impact your finances.
1. More Predictable Costs
Owning your home helps you budget, because you (ideally) have a fixed-rate mortgage. You can easily plan ahead by knowing exactly how much you’ll need to pay on your mortgage each month.
When you’re renting, your situation is never permanent, and if you have to move you might end up paying more. With a home, you’ll never have that question to worry about.
2. Build Value Through Equity
Each time you pay your mortgage payment, you’re adding equity to your home. This equity translates to real value that belongs to you. You can use it in the future, such as by borrowing against your equity when you need a loan.
This basically creates a savings plan, but instead of transferring funds into a savings account, you’re transferring them into your home. This equity can come in handy later if you find yourself in a difficult financial situation.
3. Make a Wise Investment
When you buy a car, it loses value the moment you drive it off the lot. A house is one of the few things that almost always increases in value the longer you own it.
Of course, the housing markets in cities will fluctuate with time. Sometimes, you might even see drastic changes in your home’s value from one year to the next. But if you can hold on to it for long enough and ride out those ups and downs, you’re almost certain to see your home increase in value.
That said, buying a home is only a wise investment if it’s really within your budget. If you buy a home that’s too expensive and struggle to keep up with the payments, you probably won’t be able to keep it long enough to reap the financial benefits.
But as long as you buy the right home for your income level, you’re investing in the future with an asset whose value is sure to grow.
4. Reap Big Tax Benefits
One of the most appealing things about buying a home is the tax benefits you’ll get.
For example, you can deduct your property tax, mortgage interest, and certain closing costs from your taxable income. These deductions alone can be huge. But if you take out a home equity loan, you can also deduct any interest you pay on that loan.
The world of homeownership and taxes can be complicated. If you want to learn more, check out this informational read.
Financial Drawbacks of Owning a Home
Those benefits are big. But what are some of the reasons you might hold back from buying a home? Let’s take a look at the potential drawbacks.
1. Unpredictable Maintenance Costs
Although a fixed-rate mortgage lets you pay the same amount each month, the maintenance costs of your home are far more variable.
When you rent, your landlord takes care of the maintenance, so it’s easy to forget that this is an added cost of homeownership.
Some months, your home won’t need any maintenance at all. But then, you might suddenly have a big issue with the roof or plumbing, and find yourself facing down a bill worth thousands of dollars.
The only way to prepare for these costs is to set aside money in a fund that you’ll use for home maintenance. If you aren’t responsible about saving an emergency fund, you might find yourself stuck with a home repair bill you can’t pay.
2. No Short-Term Value Gains
As mentioned above, homes tend to increase in value over the long term. But in many markets, you won’t see those gains for a number of years.
This means that if you’ve only lived in your house for a short amount of time, and you have to sell, you might end up losing money. Even if the home is valued the same as when you bought it, you’ll lose all the money you paid in closing costs and other expenses.
Buying a home doesn’t make financial sense if you don’t intend to keep the home for many years to come.
3. Many Other Added Costs
Maintenance isn’t the only cost that homeowners have to pay. The process of buying a home also adds many other costs that can make put this decision out of your price range.
You might need to buy furniture, which is often the case for renters, too. But you’ll also need other equipment for your home maintenance, such as a lawnmower or pressure washer.
Your ongoing costs will include not just your mortgage payment, but also utilities, insurance, property taxes, and more. This can quickly add up to a much higher monthly bill than what you’d pay as a renter.
Is Owning Your Own Home Right for You?
In many ways, owning a home makes good financial sense. However, owning your own home isn’t right for everyone. Weigh these pros and cons, and consider your financial situation carefully, before you make your decision.
If you decide buying a house is the way to go, but you’re worried about your bad credit, I can help! Check out this guide to buying with bad credit.