Advantages & Disadvantages to Homeownership

While renting offers greater flexibility and lower short-term costs than buying a home, homeownership provides important financial benefits, including:

Equity - As a homeowner, your monthly mortgage payment functions as a type of scheduled savings plan. Each month, a portion of your payment is applied to the principal of your mortgage loan, allowing you to build equity or an ownership interest in your home. In contrast, renters pay rent to a landlord without building equity.

Tax Benefits - Homeowners receive favorable treatment by the Internal Revenue Service (IRS) in the form of deductions allowed for mortgage loan interest and property taxes. (Interest is the major portion of a monthly mortgage payment during the first-half term of most mortgages.) When you rent, your landlord receives the deduction.

In addition, married homeowners who have owned and occupied their principal residence for at least two of the past five years can keep, tax-free, up to $500,000 in capital gains ($250,000 for single homeowners) on the sale of that house. An accountant can provide you with more specific information on any questions you might have regarding capital gains deductions.

Fixed Housing Costs - While rent typically increases over the years, the principal and interest portion of most mortgage payments remains unchanged over the life of the loan. Therefore, you will pay the same house payment while other costs are rising due to inflation.

Increased Value - Homes typically increase in value over time.

Sense of Community - When you move into a neighborhood, you become part of that community. The people are the most important part of the neighborhood. They help each other in times of trouble, and they even keep an eye on your home when you’re not there. Many neighborhoods have a neighborhood watch group and/or a homeowners’ association.

Flexibility in Changing the Decor - When you own your home, you have more flexibility in changing the way it looks. You can paint your walls or put in new carpet without getting approval from a landlord.

However, there are some disadvantages when owning a home. When you buy a home, you are responsible for fixing and maintaining the exterior, such as roofing, windows and landscaping; and the interior, such as carpeting, plumbing and painting. Upkeep on a house can be time consuming and costly. You also may need to purchase basic household items such as a lawn mower, garden tools and major appliances.

Owning a home also makes it difficult to pick up and move on a whim. It may take months to sell your house.

You must have enough resources to afford a down payment and closing costs, which typically average 4½ to 5½ percent of the purchase price of the home. As a homeowner, you will pay property taxes. As a renter, your property taxes are factored into your rent.

While buying a home might not be right for everyone, especially if you anticipate moving in the near future, it can contribute to your own financial security and personal satisfaction.