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Understanding
Your
Investment
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Getting Started - Pros & Cons of Ownership
The decision to purchase a home is a big one
and should not be made lightly. If you are planning to buy a home,
you probably have good reasons in mind, ranging from the purely
personal to the very practical. But homeownership isn't for everyone.
Buying a home is a complex, time-consuming, and costly process that
can bring unwelcome responsibilities. There are many good reasons
for becoming a homeowner, provided you are ready for the increased
responsibilities that come along with it.
Advantages of Homeownership
If you are planning to buy a home, you probably have good reasons
in mind. Some of the major advantages are described below.
** A Place to Call Your Own **
Perhaps you are ready to settle
down in your community and want to have the feeling of permanence
and involvement that comes with owning your own home. Maybe you
need more space for your family. Or maybe you want more freedom
than you currently have as a renter to change your home to suit
your individual taste and needs.
** Financial Advantages **
Owning your own home can offer a number of financial advantages,
many of which are noted below.
**Scheduled Savings **
When you are a homeowner, your monthly mortgage
payments serve as a type of savings plan. Over time you will accumulate
what lenders call “equity,”
an ownership interest in your house that you may be able to borrow
against or convert to cash by selling the house. On the other hand,
renters continually pay rent to a landlord for as long as they rent
without the opportunity to build up equity.
**Stable Housing Costs **
While rents typically increase year after year, the principal
and interest
portion of most mortgage payments remains unchanged for the entire
repayment period. Because of the effect of inflation,
you pay the same amount with ever “cheaper” dollars as
time goes by.
** Increased Value **
Houses typically increase in value over time. It's not unusual for
a house that sold fifteen years ago to be valued at much more than
its previous selling price. This increased value is as good as money
in the bank to the homeowner.
** Tax Benefits **
Homeowners are eligible for significant tax advantages that are
not available to renters. Most important, the interest paid on your
home mortgage is usually tax deductible and can save you a substantial
amount each year in federal income taxes.
Possible Drawbacks of Homeownership
Owning a home requires a significant investment in time, energy,
and money. You don't want to overextend yourself to the point that
you don't have a penny to spare for anything else. Below are some
possible drawbacks of homeownership for you to consider.
**High Costs **
You can expect to pay more for housing as a homeowner than you did
as a renter, especially for the first few years. Even if your mortgage
payments are less than your previous rental payments, homeowners
must also pay property taxes, homeowner's
insurance, all utilities, and upkeep expenses.
** Decreased Mobility **
As a homeowner you cannot move as easily as a renter by simply giving
the required notice to the landlord. If you anticipate moving to
a new location within the next year or two, this might not be the
ideal time to buy a house.
** Repairs and Maintenance **
Don’t forget that responsibilities such as mowing the lawn
and taking care of needed repairs come along with homeownership.
The promise of reaping the advantages of homeownership without the
accompanying repair and maintenance responsibilities is a major
factor in the popularity of condominiums.
** Possibility of Foreclosure **
If you fail to make your payments, the lender may sell the mortgaged
property. This is called foreclosure and can result in the loss
of your home, your investment, and good credit rating.
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