See what you qualify for
Find the best mortgage option for you in minutesGet My Rate
When it comes to owning your own home, there are plenty of advantages! But it’s also very important to understand what you might be losing once the paperwork is in your hands. If you’re still on the fence about buying a new home, we’ve put together a pros and cons list that may help make your decision a little easier (or at the very least, more informed):
It’s generally a good investment.
You’ve probably heard this before but, instead of paying monthly rent to a landlord, you can start buying your own home equity. The longer you hold the equity, the more the value increases. You can also fall back on your home’s equity for emergency situations (i.e. your family falls into debt, you need help financing your child’s education etc.).
You’ll have fixed monthly payments.
If you’ve ever come to the end of a 1-year rental lease and been afraid to see what the increase in rent will cost, then you’ll appreciate the concept of fixed monthly payments. Entering into a fixed-rate mortgage means you’ll pay the same monthly principal (plus interest) every month throughout the term of the loan which can really help when it comes to budgeting for the future. Of course, homeowners insurance premiums and tax laws may change and your property taxes may fluctuate based on property value, but generally, you can expect your monthly mortgage payments to feel more and more affordable as inflation increases.
It helps you build good credit.
We all know how important it is to have good credit! As you maintain regular mortgage payments, your credit score will increase over time. At the beginning, your credit score will take a hit when you take out the loan because, on paper, you have a sizeable debt on your hands that you’ve yet to prove you can repay. But as you make regular on-time payments, that debt will look more and more like responsible debt, which can help raise your credit score. Just be sure not to take out any large loans at least 6 months after taking out your mortgage.
It provides more privacy.
Unlike renting, or even owning condos or townhomes, buying a house gives you total control. Most likely, you won’t need to ask permission from an HOA board or landlord to make a home renovation and you won’t have to worry about pet limits or toeing the line on noise restrictions past a certain time in the evening. The only rules you need to follow are codified laws and those set forth by your lender or HOA, if there is one.
If owning a home offers such freedom and the situation is so ideal, then you may be wondering why some people choose to rent instead. Luckily, the more you learn about the potential challenges, the less daunting they may seem.
You’ll need a down payment and you’ll have to pay upfront costs.
Back in the day, saving up for a 20% down payment was hands down the biggest barrier for renters to become homeowners. The industry has changed so drastically over the past few decades that the 20% down payment is widely regarded as myth because today, you can qualify for a mortgage with as little as 5% down!
You will have to save up for other upfront costs, though, including closing costs to your lender (typically 3% – 6% of the total loan), lawyer fees, real estate agent commissions, etc. Make sure to calculate the total of what you can invest prior to buying so you can factor the other upfront costs into your budget.
You’ll have to pay property taxes and other regular fees.
As a homeowner, you can expect to pay a variety of other fees you wouldn’t encounter as a renter. Whether it’s property taxes, utilities, HOA fees (if you purchase an applicable condo or townhome), homeowners insurance or private mortgage insurance, there are a lot of extra costs you need to be prepared for.
Maintenance repair costs can get expensive.
Predicting the cost for maintenance repairs isn’t exactly a perfect science, but it’s always better to be safe than sorry. A good rule of thumb is to set aside 1% – 3% of your home’s purchase price annually to account for any home/property maintenance or upkeep. If you’re looking to buy an older home, you may want to consider bumping that to 4% as more upkeep tends to be necessary with older properties and homes.
You have less flexibility when it comes to “putting down roots”.
When people talk about buying homes, they often equate that with “putting down roots.” If you’re making the switch from renter to homeowner, keep in mind that the entire process can take months or even longer depending on the market, which can make it harder to achieve other goals you’ve set for yourself in the process.
Typically speaking, you should be prepared to “root” yourself to your home for at least 5 years if you expect to make any capital from selling. That being said though, there is always the option to lease the space so you can head out on short-term trips or travel adventures if that’s your vibe.
At the end of the day, only YOU know if homeownership is the right fit for your lifestyle and your needs. If you’d like to learn more about your options and how the process works, contact us today!