Waiting to buy a house could be costing you money. Homeownership has significant financial benefits, and yet, for the first time in 50 years, we have more renters than ever in the U.S. Almost half of renters say that their biggest regret is not buying a house.
But can they afford to wait? There are pros and cons to renting and buying, depending on your financial situation and current circumstances. In today’s market, affordable loan programs are available to many people who are considering buying a house, reflected in an affordable monthly mortgage payment. There’s a reason homeownership has been part of the American dream for decades. The latest data from the Federal Reserve’s Survey of Consumer Finances for 2013 to 2016 indicates that a homeowner’s net worth may be more than 44 times greater than that of a renter.
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1. Earn money instead of spending it on rent.
Housing prices have increased in many parts of the U.S., and right alongside, rents are going up. It may look like a better deal to rent than buy at face value — cheaper in the short-term and a helpful option for some renters, depending on circumstance — but in the next five years, renters may miss out on a housing investment that grows. “Over the next five years, home prices are expected to appreciate on average by 3.35 percent per year and to increase by 24.34 percent cumulatively, according to Pulsenomics’ most recent Home Price Expectation Survey,” Lori Richardson, Cornerstone Home Lending, Inc., Vice President, NMLS# 272264, says.
“As an example,” Richardson says, “Let’s assume a young couple purchases and closes on a $250,000 home in January 2018. If we only look at the projected increase in the price of that home, how much equity will they earn over the next five years? Since the experts predict that home prices will increase by 4.2 percent in 2018, the young homeowners will have gained $10,500 in equity in just one year. Over a five-year period, their equity could increase by nearly $45,000!” This figure does not even take into account their monthly principal mortgage payments, Richardson explains.
2. Build on an investment.
As Richardson highlighted in the rent-versus-buy example, Americans could create more benefits by owning a home than any other investment alternative. Toby Roberts at Cornerstone explains that, for many Americans, delaying the purchase of a home can dramatically decrease the ability to grow equity and succeed financially. “My recommendation to young buyers is that waiting to save a large down payment may actually cost thousands, and it may be better to buy now with a small down payment than pay more for a home later,” he says.
Roberts and Richardson agree that, in many cases, home equity is one of the largest portions of a family’s overall net worth. Not only is homeownership something to be proud of, but it also offers you and your family the ability to build equity you can borrow against in the future. Richardson tells her clients stuck at a crossroads, “If you’re ready and willing to buy, find out if you’re able to today.”
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3. Get a set monthly payment.
With keys in hand, and with most loan types, owning a home means locking in your monthly mortgage payment. No longer will you be at the whim of landlords, apartment buildings, and condo complexes that may exercise their right to raise rents unexpectedly. Many tenants have been told to count on rents rising each year, due to a combination of maintenance costs and inflation; monthly rent can also spike because of an increase in demand in a popular area. Not so with long-term homeownership.
4. Take advantage of tax savings.
There’s the ability to build an investment over time, and then there’s the annual icing on the cake. Buying a home comes with a good deal of responsibility but also quite a few benefits. “The current tax laws allow you to write off the first $10,000 of property taxes along with mortgage interest,” Scott Cummins at Cornerstone, NMLS #208602, says. “So, if your house payment is similar to a rental payment, then the financial benefits at tax filing time are obvious.” You can learn more ways to save on your property taxes here by filing a homestead exemption.
5. Save automatically.
It’s simple but highly effective. Investing in homeownership turns your house into a “forced savings vehicle.” Over time, Roberts says, this could create the ability to help your family fund higher education, support retirement planning, or take care of an aging family member.
Assuming a moderate amount of price appreciation over the years, your home becomes a very valuable asset, Cummins says. “It can serve as collateral for various loan products or yield a nice return upon selling,” he explains. “And aside from not paying your landlord’s mortgage, not growing your landlord’s equity, and not maintaining your landlord’s property, buying a home can be the foundation for starting a small business down the road.”
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6. Grow local communities.
When you purchase a house and join a neighborhood, you’re not only benefiting your family, you’re supporting those around you. “Owning a home has been proven to help strengthen the family unit and communities,” Roberts says.
Some of the other benefits of homeownership are not found on a general ledger or on a 1040, Cummins adds. Instead, they can be found in the feeling of pride and accomplishment during your first housewarming party or backyard barbecue. He says, “Unlike renting, owning a home allows you to make your mark on a house and become rooted in the community.”
The timing may not be right for you to buy a house, but it never hurts to ask. You can download our free LoanFly app to get prequalified and find out in minutes.** Cummins says that waiting could be the right choice if you’re paying down student loan debt or saving up for a down payment to increase your purchasing power and lower your mortgage rate. But, he cautions, waiting too long can put the cost of that dream home out of reach. “Rates are on a slow but steady upward trend, along with house values,” he says. “That means the same house today could cost more next year.”
*Based on estimates provided in example.
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For educational purposes only. Please contact a qualified professional for specific guidance. Sources are deemed reliable but not guaranteed.
Read this article on Cornerstone Home Lending here.