Homeownership is part of the American dream. Yet, there are many factors to contemplate, and the decision is not as simple as “I want to buy a home.” Therefore, we’ve offered the following items that may be helpful when considering an investment in your primary residence.
Comparing the costs
When identifying the costs, rentals are easy to calculate. You simply need to identify the deposit amount, the monthly rent, and the approximate utility costs.
The costs of homeownership, however, is a little more complex. You’ll need to consider the downpayment as well as the monthly payment including principal, interest, taxes, and insurance. Those four components of a mortgage payment are often called “PITI,” and current interest rates will have an impact on the payment. You will also need to consider utilities, maintenance, repairs, and the cost to sell the property if you choose to move.
It’s not just about the costs
I bought my first home when rental prices in my city increased rapidly leading up to hosting the Olympic Games. It was an easy decision, as it became relatively cheaper to buy than to rent. But the decision is rarely as easy as “one is more expensive.” In fact, according to Nerdwallet, homeowners pay from 33% to 93% more for housing each month than do renters living in the same state.
So, if purchasing is generally more expensive, we then must look at the benefits of homeownership. The primary advantage is that homeowners are gaining equity with each payment. This equity can be used later using a cash-out refinance, or for retirement security with a reverse mortgage.
How long do you expect to stay in the home?
One of the primary advantages of renting is mobility. If you are not sure where you will reside in the next year or two, renting affords you the option to easily lease in another area.
Conversely, your housing investment is a long-term investment strategy. Most analysts will agree that it doesn’t makes sense to pay the upfront costs and disposal costs of a home purchase for a short-term stay, and that you should plan to stay in your home for at least three to five years.