Owning a home has always been part of “the American Dream.” But the recent real estate downturn (actually a “depression” here in Arizona) has reminded first-time homebuyers that purchasing a home is a big decision and should not be taken lightly.
Pros of Owning a Home
Ownership brings a sense of pride that renting can’t match. You can fix it up, make improvements, and don’t have the hassle of a landlord’s rules.
Historically, another benefit has been that you may build equity over time. For this reason, home ownership has often been touted as better than renting.
And finally, there are tax benefits from owning a home. In many cases, the mortgage interest and property taxes you pay are deductible, which means you will be lowering your overall tax burden.
Cons of Home Ownership
If you’ve ever seen the movie, “The Money Pit,” you know that home ownership can also be very expensive. Things like plumbing, heating and cooling, and appliances can break down. There also the temptation to decorate and upgrade and landscape. It seems easy to justify because it’s “yours.”
Another consideration is that there is potential to lose money on a home. Although real estate has generally gone up in value, there are times when the market stays relatively flat or actually declines. Individuals and couples who bought homes in the Phoenix market in 2006 and 2007 likely have seen the value of their home drop dramatically.
Finally, buying a home is a long-term proposition. When you rent, you may be bound by a lease, but it is usually easier to move than if you own a home and must sell it. You have a significant financial obligation and selling a home may take a long time to complete.
How Much Home Can You Afford?
In the past, young families were often counseled to “buy as much home as you can afford!” The recession, high unemployment, and an unsettled real estate market has made us rethink that advice. Part of the real estate bubble was caused by lax lending standards and people buying more home than they could afford!
Remember that it’s not just the mortgage that you have to consider. The bigger your home, the more you will have to spend on utilities and maintenance and furnishings. Use our helpful calculators to help you determine whether you can afford a home as well as what your mortgage payment would be.
Financial planning is an evolving plan that changes as you grow in your career path and move on in your life stages, it is a plan that needs to be reviewed as the circumstances changes for example getting married, buying a house and raising a family.
As your life goals and financial status changes you will need to review your financial plans to see if you will achieve your financial goals within the given time line. Give Johnson Financial Advisors a call and we would love to help you 602-242-4000.