In this article, our Newport Coast Realtors explore the pros and cons of homeownership and the benefits vs risks of being a renter.
Fantasy vs Reality
When we were kids all of the grownups told us how to successfully live our lives when we grow up – buying a home was one of those milestones of becoming a successful adult. In today’s world, we need to look at homeownership through different goggles.
It really depends on your specific situation and game plan. Whether or not homeownership is right for you depends on several factors.
Homeownership Is An Investment
Our Newport Coast Real Estate Agents suggest you think of homeownership as part of your wealth building retirement portfolio. You may have a 401k account, you may have individual IRAs, stocks, or bonds – real estate, even your primary residence – is thought to be part of your investment portfolio. In this situation, your home would serve two essential purposes.
- Shelter. Everyone needs food and should have shelter.
- Investment. You’re paying yourself each mortgage payment (unless you paid cash). And one day you’ll either sell it (most likely have an appreciation) or you’ll own the home free and clear.
How Much “Home” Can You Afford to Purchase?
One factor in figuring out whether or not it’s best for you to buy vs rent is to figure out how much home you can afford to buy in the area you want to live. You’d be wise to speak with a local mortgage advisor to expedite the process and make sure you’re not missing any fees like impound accounts including homeowners fees, HOA fees, and property taxes.
You’ll also get a better idea for the typical closing fees associated with buying real estate. There are other financial factors to consider too like a downpayment, PMI, and any deferred property maintenance both known and unknown. The lender could also require you to have a healthy cushion for those unexpected rainy days.
Once you have a professional help you analyze your specific financial situation it’s easy to come up with a game plan to determine if homeownership is right for you and how you’re going to get there.
You have to weigh renting real estate vs buying real estate.
When you rent you own nothing and are paying someone else (your landlord) for the privilege of occupying their space. You’re at the mercy of someone else and the money each month coming out of your pocket may change either annually if you’re in a rent controlled area or at the mercy of the landlord’s wishes.
The rent will change and 99% chance that fee will become more expensive as times goes by. This doesn’t happen when you own a home.
When you own a home you’re paying yourself and that has big value. Your mortgage will have terms.
One of the most popular mortgage terms is a 30-year fixed mortgage rate. If you elect for this program you’ll always know what your monthly payment will be no matter how the market shifts – and over time the market always goes up.
Most economics are alarmists and will argue the housing market is volatile. They do this because third-party interests are paying them to create views for advertising dollars. When we get rid of the media noise the truth is pretty straightforward.
Here is the National Home Price index tracking the last 30 years. As you can see home ownership is a great investment. If your goal is to buy and sell within two years most likely renting would be a wiser plan for you.
Okay. We get owning a home makes financially more sense than renting in most cases. But what about being house poor?
This is a very critical topic to think about which shouldn’t be taken lightly when researching homeownership. Being “house poor” is a bit of a wobbler and subjective depending on your lifestyle.
- Are you a homebody or a socialite?
- Do you enjoy to travel and vacation regularly?
- Do you often buy designer clothing and accessories?
- Is dining out part of your weekly routine?
More About Being House Poor
Lucky for you your mortgage advisor will help you navigate the “house poor” waters. Fortunately, most banks will only lend you money if your debt to income ratio leaves you with enough money to comfortably live each month after your mortgage payment including PITI – which is designed as a safeguard.
When it comes down to it, homeownership is historically a much smarter decision as opposed to renting. Don’t be trciked by media propaganda and scare tactics. The days of needing 20% as a downpayment are gone. Fortunately for you, plenty of affordable loan programs are available to us all.
Take the time to speak with a loan officer and do your homework. If you have a trusted Newport Coast Realtor they most likely should have a preferred mortgage broker who would love to educate you on the financial lending climate.