What are the benefits of homeownership? Let Texas Landsource help you with buying information. Should you buy or should you rent? This is a big housing question that nearly everyone faces at some point in life Figuring out the best answer to this question can be complicated since there are so many factors to consider. It affects not just how much money you can spend, but also how much you can save. It depends on where you live, what type of living you want, how long you plan to stay in the home, what the cost of living is like in your area, and whether you have the financial capacity (or credit score) to meet your housing obligation. For most people, the question that determines whether they should rent or buy has nothing to do with the enjoyment of the property inside. It’s more about what kind of lifestyle you want and where you feel comfortable.
We’ve designed a comprehensive guide to help you learn about your housing options—and the decision factors that are important to you so you can make an informed and confident decision.
Timing is everything
Once upon a time, buying a home was the epitome of the American dream. It was a sign of status, power, and wealth. Homes were not only a place to live but also an investment. People invested heavily in their homes to turn them into cash equivalents or from which to expand their lives. Unfortunately, this all changed in the past decades when home values failed, and foreclosures were up. People learned some hard, often disastrous lessons about the home value and how closely real estate is tied to the entire economy. The result is a rapidly declining interest rate environment and widespread foreclosures which have thrown the housing recovery into total chaos. Homeownership has declined in most America’s biggest cities, according to Trulia. In 2000, national homeownership was at 67.1 percent, rising to 69.2 percent in 2004 before crashing to an average of just 62.9 percent in mid-2016.
However, as regulators intervened and mortgage rates dropped to their lowest rates over the last 30 years to under 4 percent in 2016, home ownership has become more affordable nationally. According to a Trulia market affordability study, in 2016, the median household could afford a home 1.5 times more expensive than the median home price. In 1980, when mortgage rates had grown to a staggering 30 percent, the median household could only afford about 3/4 of the median home price.
Today, the market has slowly recovered.
Home value gains are increasing, and inventory is limited. As mortgage interest rates are beginning to slowly rise— the average interest rate of a conforming 30-year fixed-rate mortgage jumped from around 4.0% in November and December to 4.4% by the end of January—affordability could be on the chopping block, according to Zillow.
“For nearly a decade now, homebuyers have been buoyed by historically low mortgage rates that made buying a home more affordable than it was for prior generations, but tomorrow buyers may not be so lucky,” said Zillow Senior Economist Aaron Terrazas.
“Rates are showing a clear upward trend, bringing an end to an era of historically affordable mortgage payments.”
What are the benefits of homeownership?
A home is much more than a house. It is a place where families grow, memories are made and passed down through generations. It is an investment in your future, and for many, it is their biggest financial investment. Self-made millionaire David Bach told CNBC Make It that “buying a home is the escalator to wealth in America. Homeowners are worth 40 times more than renters.”
Mortgage rates have fallen steadily over the past five years. This has made home ownership more affordable for younger people and retirees alike. Plus, there’s the tax benefits: the interest you pay on your mortgage, as well as property taxes and mortgage insurance premiums can be itemized as tax deductions.
Owning a house is an investment in your future. It can be both the source of pride to know that you own something and a place to live. It creates security by providing shelter for you and your family. There’s great appeal to owning your own house, including freedom, independence, and privacy.
“It’s an investment,” Will Featherstone of Featherstone & Co. told Forbes.
“Each month you write a check for rent, that’s money you’ll never see again. Each month when you pay your mortgage on a home you own, you’re making an investment in something you personally own. You’re building equity — the portion of your home you’ve paid off. Building your wealth through homeownership is how many people invest in their futures.”
Homeownership has its benefits, but they come at a cost. Home also comes with a lot of so-called “hidden costs”—out-of-pocket items beyond that monthly mortgage check, everything from HOA fees to regular maintenance costs to major projects, like replacing a roof.
The upfront cost of owning a home is higher than renting one. This is true whether you pay cash for your home or pay for it through a mortgage loan or a title loan. Some expenses are hard to quantify and others are harder to say when you’re just starting out. For example, it’s hard to say how much it will cost you to replace your roof because every homeowner’s experience is different.
Homeownership is an investment, but one that can pay huge returns over the long haul. The payoff of home ownership can take years to realize, but it can also be stunningly rewarding. You can build equity in your home, streamline your budgeting, and save money on regular maintenance and repairs. There are no hard and fast rules when it comes to making homeownership into an investment; there are simple rules for making it a great investment. The big question is whether you’re ready to make the leap.
What are the benefits of renting?
Although the decision to buy a home is often framed as an economic one, that’s only part of the picture. There’s a lot more to it than just financials, particularly for millennials who are now considering whether to rent or buy. Millennials are balancing family needs, job mobility, and rental flexibility when making that choice.
“Millennials tend to value experiences over material possessions. Consequently, when a new job opportunity or a new adventure on the other side of the state or across the country calls, they want the freedom to be able to answer, and being tied to a mortgage isn’t conducive to that semi-nomadic lifestyle,” Forbes notes.
When you’re renting, the amount that you pay each month is predictable. Sure, the rent may go up from time to time, but for the most part the monthly payments stay the same. No surprises. You are committed to your current abode so even if something breaks or needs to be replaced, it’s someone else’s problem. After all, when you own a home, maintenance and repairs are your responsibility. Knowing that a hefty repair bill just might be lying in wait around the corner of an unexpected repair can take some of the fun out it.
“Determine how long you plan to live in this home, and if you have the funds to support a down payment now as well as all the hidden costs of homeownership such as closing costs, taxes, appraisal, appliances, maintenance and HOA fees. If you think you’ll pay less rent while living there as compared to the down payment plus hidden costs, then it is financially advantageous to rent versus buy,” Chuck Hattemer of Onerent told Forbes.
“Buying a home is a gamble,” writes Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries in their book, Zillow Talk: The New Rules of Real Estate.
“It’s a gamble that we will want to keep living in one place – and keep making the mortgage payments that come with it – for years and even decades into the future.”
Ready to take the gamble?
Your choice of homeownership will shape your future and your life in ways you can’t even imagine. It will affect the people around you and what your lifestyle will be like. While there are many benefits to homeownership, moving to a new place can be stressful and daunting, so it’s important to know all the possible risks and benefits before jumping into the home buying or renting game.
To determine which type of home is right for you, consider the following: does your budget allow for a down payment? What is your spending range? Are there specific features you crave? Are there any drawbacks that make renting in desirable (if not necessary) compared to buying? Researching these things will help you determine if renting is right for you, or if you should spend more money buying the home you envision.
If you’ve figured out that the benefits of homeownership outweigh the benefits of renting and think it’s the right time to transition, congratulations! Becoming a homeowner is an exciting and rewarding experience.
If you need more information on the benefits of buying or renting a home or on Texas land for sale get in touch with Texas Landsource today. Didn’t find you you were looking for today? Check out our sister site Mississippi Landsource.