Are you ready to buy a home?
May 2, 2017
Are you dreaming about buying a home but find yourself wondering whether you’re really ready? Well, you’re off to a good start then. You get that even though homeownership can be hugely rewarding and financially smart, it’s not a no-brainer: there are risks too.
So here’s a list of major rewards and risks to help you focus your thinking. What does the balance between the two look like for you?
Freedom … and responsibility
What could be better than having a place that’s truly yours? Owning property means you get to call the shots, instead of your landlord. Yes, you can paint the living room black. And then turquoise when you need a change.
The flip side to this freedom is responsibility. Responsibility for all the ongoing tasks and expenses your landlord used to cover, like maintenance, improvements, insurance, and water bills. Are you ready and willing to pay the full costs of homeownership? Don't fear, it just takes a little discipline and some planning.
That planning and discipline applies to buying and owning a home. Bottom line, you need a budget. First, make sure your homebuying budget includes all costs, not just the mortgage. What else is there? See our post on credit and look at the categories under capital. Then there's your homeownership budget, your ongoing spending and saving plan for your home. If unexpected costs were to put you behind on your mortgage, you could find yourself in foreclosure, lose your home, and damage your credit for years. An emergency fund, in addition to your ongoing and expected expenses, is going to really help you sleep at night.
Build wealth … or take a loss
For most homebuyers, building personal and generational wealth with equity is part of the plan. Your home may well increase in value over time, especially if you buy low and invest sweat equity, careful maintenance, and home improvements.
On the other hand, your home could decrease in value due to factors beyond your control. You could end up owing more than the home is worth and take a loss if you have to sell it. This is something to think about if your work might call you across the state or the country. You could potentially rent out your home — be a landlord — until the market recovered. How would you feel about that responsibility?
Remember too that buying is usually more expensive than renting in the short term, so selling too soon can mean taking a loss regardless.
Save on taxes … until you can’t
As a homeowner, you can usually deduct mortgage interest and property taxes from your federal income taxes (as long as you’re willing to itemize deductions).
This deduction is very popular because it amounts to an increase in buying power, especially for more expensive homes. But tax laws can change, so it’s not a great idea to count on it to make homeownership affordable.
There are few details so far, but the Trump administration has plans to overhaul the tax code in general. Will this deduction disappear or transform in some way? Some argue that, besides costing the federal treasury billions and billions every year, it doesn’t promote homeownership as well as it was meant to.
Some great tax credits … but one time only
Homeowners can also deduct mortgage closing costs and, currently, earn tax credits on upgrades such as solar panels. These savings are great, but they apply to only a single year. Stay focused on long-term benefits.
So, are you ready to buy a home?
Are some of the risks of homeownership a bit unsettling? Your dream just met reality, didn't it.
Don’t cancel your dream just yet. These questions may be tough, but answering them honestly and thoughtfully now will translate to smart decisionmaking and hopefully longterm satisfaction.
With knowledge comes confidence. Keep educating yourself about homebuying and homeownership by exploring this blog and other trusted sources of information. Not to toot our own horn too much, but honestly, the Framework online homebuyer course is a quick, mobile-friendly way to cover all the basics of homebuying, including whether you can really afford it. And you can always contact a Homeownership Advisor for one-on-one guidance about what the rewards and risks of homeownership mean for you.
Click here to learn more about the Framework online homebuyer course.