June 2021 saw the most significant reduction in national housing affordability since 2014, an 11.9% drop. You may be wondering, is buying a house worth it?
The housing market is evolving rapidly, leaving people wondering if it’s still worth it to take the leap and become a homeowner. Housing prices are increasing, and changing interest rates make deciding whether to buy a home even more complex.
Not only that, but it’s been decades since we’ve seen mortgage interest rates rising this quickly, especially after remaining historically low for most of the pandemic. With 30-year fixed-rate mortgages having an average interest rate of over 5%, the average American homeowner is facing an increased cost of living.
This article will help you determine whether house hunting is worth it in this market, and whether purchasing a home is a suitable investment for you.
Benefits of Buying a House
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Approximately 85 million people or families in the US own their homes as of 2020. Buying a home is a long-term investment and should not be taken lightly.
For some people, buying a house makes may not be the most financially sound decision given their current cash flow and saving situation. However, for others, buying a house is the best decision they’ve ever made.
Many benefits come along with owning your own home. And these benefits can be financial, emotional, social, or physical.
Some of the more prominent financial benefits of owning a home are:
Owning means fixed costs
With a fixed-rate mortgage, your monthly mortgage payment will stay the same for the life of your loan (unless you refinance). This means that you’ll have predictable costs each month. This can be helpful when budgeting and planning for your future expenses.
Other fixed costs include home insurance and property taxes, which usually increase with the value of your home but at predictable rates. Repair and maintenance costs are not fixed and can be expensive.
Owning builds equity
When you make a mortgage payment each month, a portion of that payment goes toward the loan’s principal balance. This reduces the amount of your loan and increases your equity.
Your equity is the difference between the price you can sell your house for and your debt. As you reduce your mortgage, your home equity increases. As time passes, a larger percentage of your monthly payment goes to the loan’s principal balance instead of interest, increasing your home equity.
An Appreciating Investment
Over time, your home is likely to increase in value. This may not happen every year, but as the housing market grows, your home’s value is also expected to increase.
According to the National Association of Realtors, the average home price rose 13.4% from 2021 to $416,000, setting a new record high. Of course, there are no guarantees that your home will appreciate, but its value will likely go up over time.
Tax Benefits/Breaks
The interest you pay on your mortgage is tax-deductible, also known as the mortgage interest tax deduction. The interest can be written off your taxes, which may lower your overall tax bill. In addition, you may be able to remove your property taxes from your taxes as well. This can save you money each year.
Of course, these homeowner tax breaks are not available to everyone. You’ll need to itemize your deductions, and it needs to follow the requirements of IRS Publication 936 to take advantage of them.
Credit-Building
One of the first stages of financial stability is building your credit, which is essential if you want to buy a house. You’ll spend less interest overall on your home if you have good credit because it will enable you to get the most ideal mortgage rates. Lower interest means you’ll have more money to spend on other elements of your life, like starting a family or retirement savings.
Moreover, as you make your mortgage payments on time each month, you’re building up a good payment history. This can help improve your credit score.
If you have a high credit score, future loan and credit line interest rates may be lower. It can help you get approved for loans and lines of credit more quickly.
Personalization
When you own your home, you can personalize it to your liking. To fit your tastes, you can paint the walls, remodel the kitchen, and make other adjustments as you see fit.
These improvements not only add to your enjoyment of the home but can also increase its value. This is especially true if you undertake renovations that follow current house market trends.
Potential Side Hustle (Airbnb, Neighbor, etc.)
It makes financial sense that if you have an extra room or space in your home, you could rent it out. This is a great way to earn extra income and can help offset your mortgage or monthly payments.
There are also opportunities to earn some cash flow by renting your driveway or garage, depending on where you live, using a service like Neighbor. It’s an excellent opportunity to make additional money while giving back to your neighborhood. There are risks associated with renting out your home, though, so do thorough research before you start.
Owning versus Renting
Whether you opt to buy a home or rent one depends on your financial situation. Buying a house is probably the right choice if you’re looking for stability and long-term investment.
Renting might be a better choice if you’re not ready to commit to long-term investment, are in a lot of debt or struggling with your credit score, or don’t have the finances for a down payment and closing costs. Researching and figuring out what is best for your individual needs is essential.
Buying a house has many benefits that can help you financially in the long run. However, it’s essential to research and determine if it’s the right choice for you before making any decisions.
Owning Pros and Cons
Pros of Homeownership
There are benefits to owning a house, and these may include the following:
Less Expensive
In the long run, owning a house can be less expensive than renting, or can offer you more space or amenities for the same cost. This can depend on the local housing market in the area where you reside.
Follow Your Own Rules
When you own your house, you can make any changes you want. You don’t have to get permission from a landlord to paint the walls or make other changes.
Potential to Build Equity
As you make mortgage payments, you’re building equity in your home. This can be beneficial if you ever need to borrow money against your home or sell it.
Cons of Homeownership
Owning a home has its disadvantages as well, such as the following:
More Responsibility
Owning a house means you’re responsible for all the upkeep and repairs. If something breaks, it’s up to you to fix it.
Tying Up Finances
A mortgage can tie up a lot of your finances. This can make it difficult to save money or make other investments. Before deciding to buy a house, it’s essential to weigh the pros and cons to see if it’s the right choice.
Repair and Maintenance Costs
As a homeowner, you’re responsible for all maintenance and repair costs. This can be expensive, more if something significant needs to be repaired.
Unpredictable Expenses
Homeownership can come with unexpected expenses. For example, you may need to replace the roof or furnace sooner.
Risk of foreclosure
If you can’t make your mortgage payments, you could lose your home to foreclosure. This is a serious risk that all homeowners should be aware of.
Renting Pros and Cons
Renting has pros and cons that you should consider before making a decision.
Pros of Renting
Some of the advantages of renting include the following:
Flexibility
Renting allows you to move if your job changes or you want to live in a different area. If you move into somewhere that you end up not liking, for example due to the neighbors or location, it is much less expensive to move if you’re renting.
No Maintenance Costs
You don’t have to deal with maintenance or repairs as a renter. It is the landlord’s responsibility to fix (and pay for) anything house-related that breaks.
Lower Upfront Costs
Renting a house is typically less expensive than buying one. This is because you don’t need to come up with a down payment or pay closing costs.
Cons of Renting
Additionally, there are a few drawbacks to renting that you should be aware of, such as the following:
Rent Increases
Your rent could increase at any time, and you may not be able to afford the higher payments. When you own your home, you typically have stable fixed costs unless your local government increases property taxes.
Less Control
You have less control over your living situation when you are a renter. For example, your landlord could decide to sell the property or make significant changes.
The best way to determine if buying or renting is right for you is to research and weigh each option’s advantages and disadvantages. This will help you make the best decision for your individual needs.
Is Buying a House Worth It? You Decide
Owning a home is often seen as part of the “American Dream,” but in order to do so you must understand what really goes into purchasing a home. You’ll need to consider your finances, job stability, and lifestyle.
If you’re unsure what’s best for you, it’s a good idea to talk to a financial advisor. They can help you determine if buying a house is the right financial choice for you and can help you start paving the way to making homeownership a reality.