Most people want to become homeowners at some point in their lives, but many believe that owning a home is too expensive for them. Despite this perception, buying a house is one of the most important elements of achieving financial stability, even for people with relatively low incomes. Here are five of the top reasons you should stop paying rent and buy a home as soon as possible.
1. Renting is Far More Expensive Than Buying
Renting is cheaper than buying, right? Actually, that concept is a complete myth. Not only is renting much more expensive in the long term, but in many cases it is even somewhat more expensive on a month-by-month basis. Although mortgage payments will come with interest, the interest payments are tax-deductible in most instances. When this is taken into account, there are very few situations in which it makes better financial sense to rent than to purchase a home. In the contest of long-term renting vs buying, buying wins every time.
2. Buying Allows You to Build Equity
Even if buying was not significantly cheaper than renting, it would still have some very definite advantages. When you rent, part of your payment usually goes into paying for the property you are living in. In other words, you're paying to buy someone else a high-priced asset! Instead of using your rent to buy your landlord a multi-thousand dollar gift, you should be investing your money in buying the same asset for yourself. When you buy, most of the money you spend on mortgage payments ends up back in your pocket in the form of home equity.
3. Buying a Home Probably Isn't as Expensive as You Think
Along with the myth that buying is more expensive than renting comes the myth that buying a home requires a large sum of money up front. True, you will need to make a down payment and cover some front-end costs, but these still aren't nearly as bad as most people assume. Depending on your credit history and the price of the property you are looking at, you may be able to secure a loan with a down payment of only a few thousand dollars. If your credit isn't perfect, you may still be able to secure a lower down payment by agreeing to a monthly mortgage insurance payment to protect your creditor against default.
Closing costs are also something to take into account, though these shouldn't be too difficult for most people to come up with. The process of transfer that you and the seller will have to go through, known as property conveyancing, can be slightly expensive. This is because a conveyancing service is almost always used, which brings an added cost into the process. Conveyancing services may increase your closing costs somewhat, but they are more than worth it, as they will take care of the mountains of paperwork involved in property conveyancing for you.
4. Owning a Home Can Set You Up for Future Financial Success
There are several good reasons that home ownership is considered a key element of financial success. The most important is the fact that once you own your home, you will be freed from the monthly housing costs that otherwise eat up a large part of your income. Another critical point, however, is that purchasing one home can be your introduction to the world of real estate investment.
Just like stocks or bonds, real estate can be a profitable investment vehicle. Most beginning real estate investors start by buying a house then renting it out. If you already own one home, however, you can purchase another when you're ready to move and rent your old home out for monthly income. This allow the asset you have already paid for to work for you, and can offset or even completely pay for the cost of the mortgage on your new home.
5. Owning a Home Gives You Access to a Large Line of Credit
Once you own your home, you don't necessarily have to sell it to liquidate some or all of the equity you have built up in it. Should you ever absolutely need to, you can take out a second mortgage on your home, using it as collateral to secure a line of credit much larger than most people are able to on their own. This should be avoided if possible, but it can be a useful financial tool for paying off large and unexpected expenses. Some people even use second mortgages on homes they own to finance small business ventures, though there are usually safer ways to secure funding.
These are just five of the many reasons that it pays to own a home. Whether you are a recent college graduate just starting out in life or someone who has been paying rent for decades, it's never too late to change directions and bolster your financial situation by becoming a homeowner. Remember, if you're paying rent, you're paying for your landlord to own a home when you could be paying for your own more cheaply.
Smith, Sarah. "5 Financial Reasons You Should Stop Renting and Buy a House." Realty Times. 10 January 2018. https://realtytimes.com/advicefromtheexpert/item/1013878-5-financial-reasons-you-should-stop-renting-and-buy-a-house?rtmpage=null