Home Ownership: Benefits Vs. Risks

Summary: Sure, it's tough to pull the trigger and buy a home, especially as a first-time buyer. The big hit of covering both a down payment and closing costs is enough to scare any prospective buyer into staying a renter. When you combine the fact that you'll be responsible for any fixes the house needs and that it's pretty difficult to just pick up and move, owning your own home gets more frightening by the minute. But fear not, the advantages of owning a home far outweigh the risks....

Sure, it's tough to pull the trigger and buy a home, especially as a first-time buyer. The big hit of covering both a down payment and closing costs is enough to scare any prospective buyer into staying a renter. When you combine the fact that you'll be responsible for any fixes the house needs and that it's pretty difficult to just pick up and move, owning your own home gets more frightening by the minute. But fear not, the advantages of owning a home far outweigh the risks. So if you're already looking for a home, continue to do so. If you're a renter, it's time to reconsider. Benefits: Save big on taxes. When you own a home you'll have to pay a mortgage and property taxes. It stinks, we know. However, the interest on those bills can help. They're fully deductible for both federal and state income taxes. The first few years of your mortgage payments mostly go towards interest, which means a big-time deduction for you. As a plus, many times all costs associated with buying a home-including those involved with your loan application and home appraisal-are usually deductible. Equity is your friend Put simply, equity is the appreciation of your home's worth over what you owe on it. That's money in your pocket; money you can't accumulate if you continue to rent. Stats show that homes have appreciated in value every year in the United States since 1968. That includes years of economic downturns and recessions. What's more, you can build equity my making improvements to your house that you can immediately enjoy, such as installing a pool or redoing a bathroom. You'll reap those benefits further down the road when you sell your home. Appreciate appreciation The appreciation of your home's worth is the single biggest contributor to your equity. Homes are considered a great investment over the long term due to their outstanding historical track record. The value of a home typically appreciates at the rate of inflation, plus an additional 1 to 2 percentage points. In booming markets, such as the one experienced over the past few years, home values can grow at a much faster pace-almost 9.4 percent in 2004 alone. Own to borrow Owning a home means more negotiating power for you. The more equity you have in your home, the easier it is to acquire a loan or a line of credit to fund home improvement projects, an investment property, or a big ticket item. No more rental restrictions. Owning means it's yours. You're free to do whatever you want to your new home (to a certain extent, of course). Want to paint? Go ahead. Feeling the need to make those two rooms into one? Get the permits and go for it. Even better, owning a home means no noisy neighbors above you and no paper-thin walls which to share all of your most intimate details to perfect strangers through. Sweet & Stable A fixed mortgage rate means you'll know exactly what your house payments are going to be up to 30 years from now. Even adjustable rate mortgages cap out at a certain level. Knowing what this-undoubtedly your biggest bill each month-amount will be well into the future can help you plan for further down the road. Renters have no such luxury, as their rent can-and usually does-increase yearly. Risks: Appreciation isn't a guarantee Though history shows long-term homeowners routinely reap the benefits of appreciation and equity, the housing market can-and has-slipped over the short term. Research the area in which you want to live and make sure any prospective neighborhoods show low crime rates and growing value. It isn't cheap As a general rule, mortgage payments are usually more per month than rent. As an owner, you'll also be responsible for maintenance and repairs-no more landlord to do that for you. Menacing mortgage If for some reason you can't make your house payments, it spells big-time trouble. Lenders could foreclose on you, meaning you could lose the home and all of the equity accumulated so far. Renters, on the other hand, can usually just downsize to a smaller apartment if they find their monthly rent too much to bear. Pick up and go? Not so. Owning a home generally means fewer options when it comes to moving. Depending on the state of the market, it could take quite a while to sell your house. Waiting for escrow to close could prolong the process.