Benefits & Drawbacks of Homeownership
Becoming a homeowner is one of the biggest financial investments many people will make in their lifetime. Homeownership is wedged into the minds of many as a pillar of the American dream. While owning a home signals a certain level of financial success, it is important to consider the benefits and disadvantages before embarking on the journey to homeownership.
Some benefits of homeownership include:
Good long-term investment: in a strong economy, the value of homes generally increases. But even if the home itself deteriorates, the value of the land can increase. You are investing in an asset for yourself when you purchase a home.
Building equity: every single mortgage payment is an opportunity to build equity, which equity belongs to you. This is a big benefit over renting. You can then leverage your equity to help with other future financial goals. Mortgage payments are often referred to as “forced savings.”
Federal tax benefits: homeownership can also bring about tax breaks. Mortgage interest, interest on home equity loans, property taxes and some closing costs when buying the home can all be deductible. While the deduction is particularly useful for off-setting the initial financial blow that comes with purchasing your property, changes in tax law raising the standard deduction and capping deductions that can be taken on state and local taxes, make it less likely for first time home buyers and younger people to enjoy those breaks.
Greater privacy & stability: unlike renters, homeowners enjoy the liberty of renovating to their liking, and there is less risk of being forced out by a landlord due to increase in rent or sale of the rental by the landlord.
Control of day-to-day housing costs: homeowners have control over the day-to-day housing related costs and can make better short and long-term financial decisions.
What about the disadvantages of owning a home?
Commitment: Homeownership is a long-term financial commitment that is difficult to just walk away from. Transitioning out of a home requires more effort than moving out of a rental. Renters are generally not responsible for finding a new renter, while in most cases, homeowners need to find a new buyer and make a favorable sale.
Maintenance costs: homeowners are responsible for all maintenance and repairs, which can quickly add up expenses.
High upfront costs: buying requires sizable down payment, closing costs and moving expenses.
Property value can fall: there is no guarantee that the home value will increase.