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Buying a home is one of the biggest financial decisions that many people make, and it should not be entered into lightly. While there are a lot of enormous advantages to being a homeowner, there are also some pretty significant downsides — so is it the right decision for you?
The traditional wisdom is that when you buy a house, you’re building equity instead of just “throwing money away.” There’s some truth to that, especially now that the economy is starting to slowly recover. Depending on how long you’ll be in your home, the money that would otherwise be spent on rent will instead be going into paying off a valuable piece of real estate that you can later sell.
Con: Other Costs
Then again, most of the people who push the equity point are mortgage officers and realtors trying to get you to make a purchase. Buying a home isn’t without its own opportunities to “throw money away.” For instance, the interest on a home mortgage is massive, and will actually be the bulk of your mortgage payment. Then there’s homeowners’ insurance, property tax, and whatever utilities that you don’t always pay for when you’re renting.
Con: You’re on Your Own for Repairs
When you’re renting, you can just call up your landlord and say, “hey, come fix this,” and then not worry about paying for it, putting time into it, or anything. You don’t get that luxury when you own a home. When the lawn needs mowing, you either mow it, pay someone to mow it, or get a mean note on your door from the city. Not to mention, when disaster strikes, it strikes your wallet and nobody else’s.
Pro: You’re in Control of Repairs
The flip side of that is that you set the timeline. If there’s only one toilet, and it’s broken, you can get it repaired as soon as you can find a plumber (instead of waiting around for your landlord to contact someone). And if you want to grow a garden out back, or paint the whole house lavender, nobody will come along and tell you not to do that. (Unless you live in a place with an HOA.)
Con: You Sacrifice Flexibility
When you rent, you typically sign a lease of a year. That means after a year, if you don’t like your situation, you can move. All things considered, a year isn’t that long to live somewhere. A home is a much bigger commitment. You’ll want to stay in the home for at least the year you’d stay in an apartment – otherwise the sale is taxed at a much higher rate. But odds are you’re in it for a minimum of five years. (More on that below.)
Pro: You Gain Stability
Owning a home provides both financial and emotional stability. You might be on the hook for repairs but nobody can jack up your rent without warning. You don’t have to worry that when your lease is up you suddenly won’t be able to afford your home and have to move further out of town. You’re protected from inflation. You get tax breaks for the mortgage interest and property taxes. You have more privacy. As long as the payment is within your means, you’re set.
Con: It’s Not a Guaranteed Investment
You also may find it takes as much as five years to build equity in your home – that is, for the money you’ve paid on the loan to be great enough that you actually break even or make money when you sell the house. Selling involves lots of taxes and fees, not to mention whatever improvements you make to help sell the place. Plus, the housing market’s fluctuating right now, meaning you might not get the price you want, and even might not be able to sell at all.
Pro: It’s Still a Good Investment
Any investment is a gamble. A house just happens to be one you can live in while you’re investing. House prices tend to appreciate a little faster than inflation, and if you’re in a market like Austin or Silicon Valley, it’s a lot faster than that. And since the economy has started to recover, you’re in a good position. All in all, it depends on your situation, but there are certainly worse financial decisions a person can make than buying a house to build a future in.