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The Pros and Cons of Owning a Home

When buying a home, there are myriad factors to consider. How many years do you plan on staying in the home? What are your short and long term plans? What about upfront costs and mobility? Below we delineate the pros and cons of homeownership. At the end of the article, you can find a link to download this checklist for your use.

Pros

Good long-term investment

When you buy a home, you are investing in your financial future. According to the

Federal Reserve Bank of St. Louis, the average price of homes sold in the United States rose 28% in 10 years starting in 2009 and 10% from 2014 to 2019. In real estate, most of the money is made over time - so be patient and your investment will be worth it.

Building equity

Over time, more of what you pay on the mortgage goes toward the balance on your loan, rather than the interest rate. This builds more equity, leading to a higher return

Federal tax benefits

Mortgage interest, as well as interest on home equity loans, property taxes and some closing costs, are deductible when buying the home. There is a $750,000 cap on what you can deduct for mortgage interest. If you reimbursed the seller for any real estate taxes they prepaid while you owned the home, these are also deductible. Think of these tax benefits as lowering your overall initial capital investment in the home!

Greater privacy

When you rent a property, you have to adhere to the landlord's rules. Perhaps you aren't allowed to put up that floral wallpaper you've been dying to show off, or make that renovation to the bathroom you desperately need. A huge pro of owning a home is you have complete privacy- as long as you adhere to municipal regulations, you don't have to worry about asking a landlord or rental company if you can paint your living room green! In a home, you'll also likely have more space and be in further proximity to neighbors.

Stable monthly payments

A fixed-rate mortgage means you pay the same amount each month - unlike renting, where your rent can be increased without notice. This is great for financial planning!..

Cons

X High upfront costs

You don't just take the down payment into account when purchasing a home - closing costs on a mortgage can run from 2% to 5% of the purchase price, including numerous fees, property taxes, mortgage insurance, home inspection, first-year homeowner's insurance premium, title search, title insurance, and more. Sometimes it can take buyers years to recover these costs, so these should be considered before buying a home.

X Less mobility

When you buy a home, it usually takes 5-7 years to see a financial benefit. Consider this before buying. Is there a chance you will want to pick up and go, or are you okay staying put for several years?

X Equity doesn't grow immediately

In the first few years of paying a mortgage, your payments often go toward the interest rather than the principle. This goes along with the mobility - it offers you less flexibility with moving around while retaining equity.

X Maintenance costs

Without a super or built-in maintenance staff, you will incur high costs whenever something needs to be fixed. The same goes for landscaping.

X Rise and fall of property values

Even when you choose a home in an ideal area, you never know what will happen with the market. Make sure that you are aware of these risks before you purchase.

X Illiquidity

Homes typically don't sell as quickly as stocks or other assets. Take this into consideration when you are considering buying a home.

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