Homeownership Pros and Cons

Homeownership is a tricky decision, one that brings both advantages and disadvantages. Do you like the idea of repainting your white picket fence every five years and filling your basement with clutter? Maybe owning is for you. As you weigh your options, here are some factors to consider.

PROS

• Building Equity Barring another price crash, homeownership is the equivalent of a forced savings account. You pay your lender every month, but ultimately the cash comes back to you in the form of equity as the market value of your home appreciates over time.

• Stable Payments With a fixed-rate mortgage, your monthly principal and interest payment is set for as long as you keep the loan. Sign a rental lease, however, and you could see your rent rise the following year, the year after that and so on.

• Customizing Your Living Space Love purple wallpaper? Have a hankering to plant wildflowers? Found the perfect spot for your grandmother's crystal chandelier? If you own a house, have at it.

• Tax Benefits Mortgage interest and property taxes no longer are tax deductible. But when you sell your primary residence, you can avoid capital gains tax on a profit of $250,000 (or $500,000 for married couples).

• Community Involvement Homeownership goes hand-in-hand with voting, volunteering at schools and general civic roots. If you own a home, you may be more likely to put roots down and connect with the people in your community.

• Pride of Ownership Ever been on a home tour in an apartment complex? Didn't think so. Renting a place can feel temporary, but ownership often fosters a sense of pride.

CONS

• Pay for Your Maintenance Toilet flooded? Fridge on the fritz? That's on you — homeownership means you bear all the unexpected expenses. You are the on-site property manager who handles a burst pipe on a frigid winter morning or a broken air conditioner on a sweltering August afternoon. On these days, homeownership can be a drag.

• Risk of Decreasing Value Homeownership is never risk-free. You may end up purchasing in a period that's followed by economic decline, which affects your home's value. What is the economic strength of the city you want to live in? What trajectory is your city or state riding — stable growth, likely decline, boom and bust? Predicting the future, especially that of a specific region, is out of your control and often depends on local or state politics. A downward trend may negatively affect the equity in your home.

• Down Payment Homeownership comes with a steep buy-in in the form of a down payment that can be as little as 3 percent but can rise to 20 percent or higher. You must come up with the funds for a down payment before you can apply for a loan. And once you choose to purchase a home, you are effectively placing a large bet on a real estate asset over another type of financial investment, such as stocks and bonds.

• Difficult to Move Renting is freedom; ownership creates roots. So if you want to move, you'll need to market your house and wait for a buyer to offer the right price before you cash out the equity in your home. Depending on the market, you may end up waiting a lot longer than you'd like before you can move elsewhere.

• HOA Fees Depending on where and what you buy, a homeowners association or condo association could require you to pay hundreds of dollars a month in fees. The association may increase fees to keep pace with inflation or at times impose special assessments to pay for capital improvements. You may exercise little control over the amount or timing of these fees, especially if you don't sit on the association's governing authority.

• Property Taxes Be prepared to pay several thousand dollars a year in property taxes, which for many municipalities constitute the bulk of their revenue. In some parts of the New York metro area, the average tax bill tops $10,000. Your municipality imposes your property tax based on your home's assessed value. You probably won't always agree with the assessed value and hence the property tax amount, and you might attempt to appeal the assessment, but you are obligated to keep your property clear of tax liens.

The above article was published by MoneyGeek in November 2021. More information can be found on their website at www.moneygeek.com.

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