Happy New Year! 2015 is forecasted to be a great year for the economy and real estate. The U.S. dollar is the strongest it’s been since 2006, trading at $1.19 per Euro and the GDP increased 5% in the third quarter. In Portland, rising rents are shrinking the amount of time (2.2 years, down from 3 in 2013) it takes for homeowners to gain a financial advantage. Homes rise in value on average from 4% to 6% a year and mortgage rates are incredibly low! Depending on your financial position, it’s a great time to buy vs. rent. Check out the following financial and lifestyle advantages and considerations to homeownership.
Financial Advantages
- Equity!!! Buying a home is a great way to build wealth. You build equity as your pay down your loan. On average, homes rise in value between 4% to 6% per year. Even if your home doesn’t increase in value, you’ll be building equity as you pay down your mortgage. As a renter, you’ll never see your rent money again. You’re are paying down your landlord’s mortgage.
- Tax Breaks. Homeowners can deduct their mortgage interest payments and property taxes when they itemize their federal income taxes. These deductions offset the cost of your housing.
- Fixed Mortgage payments. With a fixed-rate mortgage, your principal and interest payments remain the same for the duration of the loan. However, your homeowners’ insurance and property taxes may change each year.
- Wanderlust? Unexpected relocation? Investing Bug? If you buy a home and choose to leave it, you can either sell it or rent it out and generate income. This works best if you can cover your mortgage (or more) with rental payments. With this in mind, it pays to choose a home that will make a good rental property in the future.
Lifestyle Advantages
- Community. Once you commit to owning a home, you are more likely to become more involved in your community because you know you’ll be there for years. You can get to know your neighbors, join a neighborhood association, or volunteer for projects that benefit the community or the local school.
- Privacy. Depending on the property type, you may have more privacy in a home. You can’t pick your neighbors, but at least you won’t share a wall or ceiling and floor with them. Of course this isn’t true if you already rent a single family home (where you may have a yard and/or fencing) or purchase a condo (where you might share walls, ceilings and floors).
- Freedom. You want a roommate? Miss having a furry friend? If you rent, there are occupancy and pet restrictions, noise restrictions, use restrictions. Homeownership, you have the freedom to do what you want to do.
- Security. Your home is yours. You don’t have the move if the landlord changes his mind (rent increases, decides to sell or rent to his nephew, etc.)
- Style expression. With a rental you are often limited with what types of changes you can make. If you own your home, you can express your style inside and out. Want to paint your house pepto-bismol pink? Go ahead. Add a satellite dish to your roof? No problem. Because you own the home, you don’t need permission from anyone-unless you belong to a homeowners association that dictates certain rules for changes to the home.
- Remodeling. In addition to making cosmetic changes to your home, you may also make construction changes. For instance, if you love your neighborhood, but have a teeny-tiny kitchen, you may opt to remodel and expand the kitchen rather than purchase another home.
Considerations?
Base your decision to rent or buy on your net income rather than your gross income. Payment estimates should include principal, interest, property taxes and homeowners’ insurance (“PITI”). Home ownership means you can’t decide one day you just don’t want to pay for it without major financial repercussions or a plan of action. You must continue to make payments and rent or sell the house.
There is also home maintenance to consider. As a homeowner, you must spend time and money keeping your home in good repair. It is recommended to keep a cash reserve equal to two mortgage payments in addition to an emergency savings account to cover unexpected expenses, such as appliances that break, a service contract on your furnace, or the need to replace your windows or roof.