HOME OWNERSHIP

Decide If Buying A Home Is Right For You

By MainStreet.com Staff Writers (01/07/08)
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Tags: Beginnings, Buying a Home, Buying a Home, Credit Report, Equity, Getting Out of Debt, Home Equity Loan, Home Insurance, Home Loan, Home Ownership, Interest Cost, Investment Value, Maintenance, Monthly Costs, Property Tax, Real Estate
Even though buying a home has historically proven to be a solid long-term investment, the real estate market comes with uncertainty. Carefully review your lifestyle and finances to determine if you are ready for the responsibilities of homeownership. Prospective homeowners must address a long list of considerations including property values, property taxes, interests costs, investment value, flexibility (the ease of moving), property maintenance and monthly costs. This quick guide will help you to determine if homeownership is right for you.

Does it suit you?
Buying a home affects more than your balance sheet. Ask yourself the following questions to help determine if homeownership fits your lifestyle.


  • Commitment. Do you prefer the long-term security of owning your home, or the short-term flexibility of renting?
  • Pride. Would you derive a sense of pride from ownership? Or does the thought of committing to a mortgage cause you anxiety?
  • Time. Do you mind spending free time (or money) on maintenance projects like lawn care and painting, or do you prefer to leave maintenance to a landlord?
Does it make financial sense?
Buying can be better than renting and vice versa. Looking at the financial incentives of both can help you decide if buying is the smarter financial move.

  • Equity
    For renters: There is none—once you write that rent check, that money is gone. If you rent is cheap you can use your extra money to enrich savings accounts or invest in the stock market, both of which may or may not end up being a better investment vehicle than real estate.
    For owners: Builds with every monthly principal payment. Over time, you’ll be able to borrow against the accumulated equity or liquidate it (turn it into cash) through a sale.
  • Taxes
    For renters: Sadly, there are no tax deductions for renters. On the bright side, renters don’t pay property tax as owners do.
    For owners: If you itemize, you can deduct your mortgage interest payments from your total income which can add up to substantial tax savings. On the flip side, you must pay property tax based on the value of your home, this can run into several thousands of dollars a year. Finally, when it comes time to sell your home, you are eligible for a major tax exemption. For the first $250,000 (if you’re single) or $500,000 (if you’re married) of your profit, you won’t be required to pay capital gains tax.
  • Interest costs
    For renters: Since you don’t have a mortgage, there are no interest costs.
    For owners: Chances are, you’ll pay more in interest than you originally borrowed. As consolation, the interest you pay will also reduce your yearly tax burden. And if you pay your mortgage off early, you’ll save some of these costs outright.
  • Investment value
    For renters: If your place appreciates in value, your rent will likely rise with it. However, if the value decreases this doesn’t mean your rent will go down.
    For owners: Home values fluctuate. An increase or decrease in value will directly affect the selling price. Even so, given historical trends, you’re likely to come out ahead.
  • Flexibility
    For renters: You can move once your lease is up, and perhaps even negotiate an early out.
    For owners: You have to go through a lengthy, and costly, sales process to divest yourself. Because broker’s fees, closing costs, and other selling fees can add up, it’s best to remain in your home for a few years to avoid losing equity.
  • Maintenance
    For renters: Not your problem.
    For owners: Your problem. Either you invest in supplies and do the work yourself, or you pay someone to do it for you.
  • Monthly costs
    For renters: Subject to an annual increase, but otherwise fairly predictable.
    For owners: Subject to change with the addition of repairs and maintenance.

    THE BOTTOM LINE: The advantages—financial and lifestyle--of home ownership are not a given. Educate yourself and give the matter some careful thought before you sign on the dotted line.
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