February 16th, 2018
Advantages To Owning vs. Renting
90% of taxpayers are expected to take advantage of the new tax law, which will double the standard deduction. That said, even before the tax overhaul, owning a home came with a considerable number of perks.
Hubris and social expectations aside, the main reason you should own a home is that it’s cheaper than renting (assuming you buy within your budget). Also, the longer you make payments on a house, the lower your principal becomes over time. Add this to the fact that a house’s value typically only goes up over time, and you’ve got some potential money in the bank one day. That’s because a lower balance combined with a more valuable house (aka appreciation) amounts to more equity.
Amortized loans take a certain amount of every monthly payment and apply it directly to the principal and the interest. As you make payments, the amount you owe is reduced, just as it would be on a credit card that you make payments on.
Appreciation is when a home’s value goes up over time. Of course, as with anything, it can’t be guaranteed, but it is likely. To get an idea of whether your house will appreciate over time, do a little research on your area. Zillow, for example, can tell you what a house was last sold for, so compare that price to the new price and do the math. Keep in mind that most houses sell for about 91% of the asking price.
On average, a house built between 1968 and 2009 will appreciate by about 5.4% every year. Houses built after this period appreciate by about 3.7%. Once again, you need to do a little research. Some areas, for example, don’t appreciate or depreciate. They will stay basically the same.
Though interest rates are expected to rise in the near future, they’re still historically low (4.25% is nothing to lose sleep over). Buy a house now and you can lock in those low rates for the duration of the loan, which is typically 30 years. Even if you don’t consider the benefits of the coming tax changes, if you just consider your house’s appreciation along with the effect of an amortized loan, the cost of owning a home is drastically reduced if you think of the money spent and gained over time.
For example: you buy a house for $250,000, and it appreciates at a steady 2% for seven years straight. Even with property taxes, insurance, yearly maintenance, HOAs and $2,000 monthly mortgage payments, those combined costs are still less than if you were to rent. Why? Because a down payment of only $8,750 could grow to a staggering $73,546 in equity in just seven years. What other investment would do this for you? And keep in mind that was only with a 2% appreciation. The national average is 5.4%.
Use your own numbers and price range to decide what makes sense for you. We’re available to answer any questions you may have about owning your own home.