Buying a home is a big decision.
You are on the hook for mortgage payments, property taxes, insurance, and maintenance. It’s a big responsibility with the potential for some major rewards.
There may be enough “what ifs” swirling in your brain to get cold feet—and there is nothing wrong with that.
But if you are trying to understand the benefits of homeownership, these are some of the best reasons to make the plunge from renter to homeowner.
Building Equity in a Home
Everyone is looking for easy ways to make money.
You may dream of buying an inexpensive home, waiting for the value to skyrocket, and selling for a handsome profit. Sometimes it works like that.
More often, one of the primary advantages of owning a home is that you build equity over time.
By keeping your home in shape, there is still plenty of upside potential. But you need to keep your home in good condition, which means spending money on basic upkeep every year.
Another Advantage of Homeownership is Controlling Your Living Situation
One of the realities of renting is not knowing where you may be living from one year to the next.
As your lease comes to an end, your landlord could increase your rent. If it becomes more than you can afford, you may have to move.
Or, they may decide to sell your place.
Either way, you may find yourself scrambling for a new spot to live, often with little notice.
One of the advantages of owning a home is that moving becomes less of an issue. As long as you decide to stay there, you can skip the chore of regular apartment hunting and save on moving expenses.
Renting often comes with annoying guidelines to follow. Your landlord might not allow you to adopt that adorable puppy from the local shelter. Or, they may have strict rules against painting the bathroom.
Depending on where you buy a home, there may be a lot more freedom—especially without a strict homeowner’s association.
The advantage of owning a home is that you may also have more privacy.
Sharing a wall, ceiling, or floor with noisy strangers may not be your first choice. Buying a house or detached townhouse may offer the space and quiet you are craving.
Homeownership Costs Could Be More Predictable
Rent often goes up from year to year, which can make it difficult to plan for. If you have a mortgage with a fixed interest rate, it may be a little easier to predict.
Your mortgage payment may include two x-factors, though—your property taxes and homeowner’s insurance.
If you have stayed in the same home for a while, utilities may be a lot more predictable, too. After a few years pass, it’s easier to budget for regular electric, gas, and water bills. You can even take steps to improve your home’s energy efficiency—which may lower costs.
For homeowners, the biggest wildcard is home repairs and maintenance.
It’s impossible to predict when your hot water heater or HVAC will stop working. To be safe, experts recommend setting aside 1-4% of your home’s value every year.
Making a Long-Term Commitment to Your Community
It’s normal to want to be part of a community. You may be eager to put down roots in a specific neighborhood, town, or city.
You may be looking for a good school district. Or, you may prefer shorter commutes. If your dream location is getting more popular, you may worry about the rent getting too high.
One of the benefits of homeownership rests in your ability to stay there long-term.
How to prepare to buy a home
If any of these perks resonate with you, here are a few things to tackle before you start shopping around:
- Clean up your credit reports – If your credit scores are less than perfect, start by checking all three credit reports—Equifax, Experian, and TransUnion—for errors. If you find anything wrong, ask them to fix it.
- Avoid missed payments – Missed payments are like kryptonite for your credit scores. They make up 35% of your total scores, so you can’t afford to miss any.
- Pay off your credit cards – Your credit card utilization is 30% of your credit scores. If you are carrying balances, pay them down before you start the home buying process.
- Reduce your total debt – Every mortgage is different. Each one has a cut off for how much debt you can have. Banks measure this by comparing your monthly debt to your monthly income, and if your percentage is too high, you may not qualify for the loan.
- Apply for a mortgage preapproval – After following the steps above, apply for a mortgage preapproval. This letter covers how much you can afford and may offer buying power in a competitive market.
Why Rent Instead of Buy?
No one likes writing rent checks.
As the money disappears from your account, you may feel like there’s nothing left to show for it.
You may not be building equity, but you need someplace to live. If you aren’t ready to pay for home maintenance, there is nothing wrong with renting.
You can invest the extra money elsewhere, which can still improve your net worth.