The following is an update to information that was first published in 2011. This is the first in a series for First Time Home Buyers.
Deciding to purchase a first home can be a huge decision. In this edition for First Time Home Buyers, I'll provide some information to help you decide whether buying a home would be right for you. In future editions, I'll cover financial concerns and solutions. I'll also help you decide whether to use a real estate agent, how to manage the process to purchase a home and what to expect at closing.
Many potential first-time home-buyers are renting, and they wonder why they should move from a rental to a home where they will have to be responsible for the maintenance. If they're paying the same for rent that they would pay for a mortgage, then who needs the headache of caring for a home?
There are some things to consider before you decide to continue renting.
First, when you rent a home, you write a rent check which goes to the landlord, and in return you have a place to live, and you have a guaranteed rent payment for the term of the lease. But there are some things to keep in mind:
- After the term is over, the rent can be increased by any amount the landlord wishes (unless you are in a rent controlled or stabilized rental, and then there is a limit to the amount the rent can be increased.)
- A rental agreement could be terminated at any time, typically with a 30 day notice.
- The landlord/building owner could sell the building at any time; while he or she is required to continue any existing leases, anything can happen when your lease expires.
By its very nature, renting is a non-permanent solution to housing.
Further, when you rent, the home is not yours to change. You have to abide by all rules in the lease. Generally, you can't tear down walls and improve the kitchen, or make other major changes. You need to follow picture hanging and paint color restrictions. You may not be able to use all of the property, for example, perhaps the fireplace is not usable, or the shed belongs to the landlord. There may be rules on what you can or can't place in the driveway. There are usually rules on whether you can have pets. If you are allowed to make major changes in a particular rental, you will not recoup your investment, since you would be investing in your landlord's home, not your own.
On the other hand, when you buy a home, you are making an investment in your future.
On an annual basis, you can deduct the interest you pay on your mortgage as well as the property taxes you pay on your tax returns.
For the year in which you close on your home, you may also deduct some of the closing costs.
While there is no guarantee, the value of your home may rise in future years. When you're ready to sell, you may have made a profit. So your investment could make money.
The home belongs to you! That means you can stay there as long, or as short, as you want. You can decorate any way you want. If you want to rip out the kitchen and replace it, you can (with the right permits of course). You can add a deck, put in a patio, or add a pool. You can paint a room in zebra stripes or all in black. When selling your home, you may be able to recoup some of the investment you have made in your home as well.
In addition, home ownership is beneficial for many other reasons. Owning your own home can provide a sense of pride, and per the National Association of Realtor's 2012 study, homeownership can have positive impact on educational achievement, participation in community, health and crime, to name a few areas.
I hope this information was useful in determining whether or not you should pursue home ownership. Next time, I'll help you decide whether you can afford to purchase a home.