What are the Factors to Consider When Thinking about Home Ownership?
There are several benefits to home ownership you will want to consider when deciding whether to purchase a home:
- Economics
- Equity
- Repairs
- Employment
- Alternatives to buying and renting
Economics
Home ownership is riskier than the stock market in regards to long-term returns. However, mortgage interest and real estate taxes are deductible on your tax return. The tax deduction to home owners is only available if the home owner pays more interest than a standard deduction.
Equity
Increases in home value and a smaller mortgage payment leads to equity building.
Repairs
While you rent, the landlord is generally responsible for all repairs. However, once the place is yours, the repairs become your responsibility. You should make sure you have money available after the purchase just in case.
Employment
Those considering home ownership will want to make sure they have secure employment. If you wind up short on funds due to lack of employment and have to sell after a short period of ownership, your investment will most likely be worthless.
Alternatives to Buying and Renting
There are a few good alternatives to outright purchasing a home or renting a home: - Seller financing - Can include a bank if necessary for additional funding, but generally a contract between the seller and buyer. The seller determines the interest rate, but could potentially save you a lot of money.
- Lease with an option - Kind of a lease on a home which the seller owns during the period you "try out" the place. Good for people who are short on cash.
- Contract for a deed - This involves a contract between the buyer and the seller. An escrow agent collects payments from the buyer for the seller over a specified period of time, at the end of which the buyer receives the deed to the property. It can reduce the buyer's costs, but the buyer can be treated like a tenant (and can possibly be evicted) up until the loan is paid off.
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