People dream about one day owning their own home, and later spend many hours on Zillow or watching programs on HGTV and other channels. Much can be said about owning a home, but here are five concerns that don’t get talked about as much as they should.
Home Repairs & Improvements
Do you have money set aside for repairs and improvements? Garbage disposals break, furnaces malfunction, yards need to be maintained, and so on. When buyers save money to buy a home, they usually consider only the down payment and closing costs. But it’s important to have enough money set aside for repairs, even in new homes.
Your equity doesn’t build as fast as you think. Buyers very often compare a monthly mortgage payment to a monthly rent payment and are happy it doesn’t all go to a landlord. But for the first few years, the mortgage principal doesn’t get paid down very much. The monthly payment on a traditional $200,000 loan at five percent is about $1,074. Of that amount, only $240 is applied to principal. Plan on staying in the home four to five years to get your money back.
A home is not an investment. For years, real estate professionals have touted a home purchase as a good investment, when in fact, it’s not. The Nobel Prize-winning economist, Robert Shiller, says that over the decades, house prices have barely kept up with inflation because of maintenance and other costs. There are good reasons to own a home, but comparing it to an investment such as a well-funded and diversified 401k plan isn’t reasonable.
The tax benefits are probably not what you’ve been lead to believe. About 70 percent of taxpayers use the standard deduction. To take advantage of the federal tax benefits, you need to be among those who itemize their deductions.
Stabilizing Housing Costs
The best economic advantage to home ownership might be stabilizing your housing costs. Once you’re in your home, the payment never goes up, unless you refinance. No landlord can kick you out or raise the rent. For many people, stabilization and security of housing is the most important benefit of owning a home.