Before forging ahead with your house hunt, it’s important to weigh the advantages of buying a house against (sorry to say it) the disadvantages.
Homeownership should bring a little zen to your life, which is why creating a pros and cons list for buying a house is so important.
It’s also personal: One person’s pro is another person’s con.
To help you make a decision, here are four pros and four cons of buying a house:
|Pros of Buying a House
|Cons of Buying a House
|Investing in your future
Building wealth (through home equity)
Increasing your credit score
Securing privacy and freedom
|Potential financial risk
A lot of money upfront
Additional monthly payments
Repairs are on you
Exactly how much of a pro or con each one of these really is can depends on a few things: the house, the house’s location and your overall life and financial goals.
So, don’t take these as gospel. But do use them as your compass while exploring what homeownership could mean for you.
Pros of Buying a House
It’s an investment in your future: The best “flex” there is
One of the biggest benefits of buying a house is that your home can serve as a low-risk financial investment because home values tend to go up over time.
This means that you can get a sweet and relatively safe deal (and some potential extra cash) when you sell your home – not bad, right?
No shade to bitcoins and bonds, but unlike other investments, you can throw a party at your home, workout in the backyard or build your very own field of dreams.
And the longer you own your home, the more return you’ll get on your investment.
Waiting at least a few years will usually help you turn a profit when you sell your house, since it should be worth more than you owe on it by then. And you’ll be past the point of having to pay taxes on the sale after just (2 years).
Build wealth one month at a time: Get that coin
Being able to build equity is one of the major money advantages homeowners have over renters.
Are you so over handing your landlord a pile of hard-earned cash every month, never to see it again? Then say hello to home equity.
Equity is basically how much of your home you actually own. Your lender owns the rest as long as you haven’t paid off your loan. But your equity gets bigger every month as you pay down your mortgage.
You can tap into your equity in several ways:
- If you sell your house, you get what’s left over after paying off the loan and closing costs
- Your lender may lend it to you as a home equity loan or line of credit
- A cash-out refinance is a new mortgage that pays off your original mortgage and pays out the equity to you
Boosting for the algorithm: Run up your credit score with a mortgage
Paying your mortgage every month is one of the best ways to boost your credit score.
Right after you’ve bought the house, your score will probably decrease, but that’s OK – it happens to everyone.
As you pay your mortgage on time month after month, your score will shoot back up because you’re showing that you’re a super dependable borrower. Before you know it, it’ll be higher than it was before you bought the house. That is, as long as you don’t miss payments or take out another big loan right after you get your mortgage. Don’t worry. You got this!
Privacy and freedom: Your space, your rules
Ahhh … that feeling you get when you realize there is no one on the other side of your wall. Owning your own house gives you the privacy and personal space you’ve been dreaming of.
You can also do whatever you want to your house. Go ahead, put up a privacy fence. Paint your front door bright red or your cabinets black. The days of asking permission or facing penalty fees are gone.
Of course, there are some situations, like when there’s a homeowners association or you buy a house on the National Register of Historic Places, where a few rules might apply.
Generally though, you’ll have more freedom to personalize your place than if you lived in an apartment or townhouse. Pro tip: Make room in your budget for crazy Halloween decorations (trust us on this).
Cons of Buying a House
It’s the “potentially losing money” for me: Buyer beware
“But didn’t you say it could be a good investment?”
Yes. Yes, we did. But like any other investment, whether it’s stocks, bonds or collectibles (even original, still-in-the-box Star Wars figures), it’s impossible to know exactly where the value will trend.
Real estate is still one of the safer investments over the long run, with the potential for big returns on your investment the longer you’re there. But let’s say you have to sell after only a few months because of work or family. You may end up losing money if you don’t have enough home equity to cover closing costs.
Talk to a real estate agent about any risks that might be involved in a house purchase (location, condition of the house, etc.) and decide if the investment potential outweighs the risks.
You need a lot of cash upfront:
The true cost of buying a house is more than its listing price.
There’s also the down payment, closing costs, home inspection and moving costs. Fun!
Expect to also pay around 3% to 6% of your purchase price toward closing costs (unless you’ve negotiated for the seller to pay those – in which case, salute).
As for the down payment, first-time home buyers can often pay as little as 3% down. But the smaller your down payment, the higher your lender will probably set your interest rate, making your loan more expensive. Are you OK with that?
And are you currently leasing a place?
If you break your lease because you find your dream home, but you have four months left on your lease, you might be on the hook for the months you have left.
This could keep you from having enough for the down payment or closing costs. And even if it doesn’t … Ouch.
Surprise, surprise: Additional monthly payments
There are a variety of extra costs you’ll be paying each month as a homeowner that you wouldn’t as a renter.
These commonly include property taxes, homeowners insurance and utilities.
If you put less than 20% down on your house, you might have to pay private mortgage insurance (PMI), which is usually a fixed amount of 0.5% to 1% of your loan each year.
Doesn’t sound like much, but if your house costs $200,000, PMI would add about $166 to your mortgage payments each month until you pay enough of your mortgage off.
So how can you know what your monthly homeowner costs would be?
Online home affordability calculators can help, but many don’t give you a complete picture.
We suggest using a calculator that factors in more of your potential monthly costs. It can help you decide how much home you can buy or if you’d prefer to wait until you have a bigger budget. Nothing wrong with that!
That broken AC? The repair’s on you
Yep – no more landlord, no more property manager or parents to fix everything gratis.
Well, maybe parents. But even they might have a limit for what they can (or want) to help with.
And even if you’re good at fixing stuff yourself, trips to Lowe’s can quickly add up. And there are some big-ticket fixes, too. Stuff like windows, foundation repairs and mold removal could run you thousands of dollars in one fell swoop.
If you don’t have enough savings left after your down payment, closing costs, mortgage payment and utilities, it might be hard to keep up with regular maintenance and repairs.
So, Should I Rent Instead? The Pros and Cons of Renting
If the drawbacks of homeownership are making you hesitant to buy, you may want to consider renting instead. Renting tends to get a bad rap, as many people think it’s a waste to put money toward something you’re never going to own.
Before you make the executive decision on buying a home, let’s take a quick look at the pros and cons of renting a house.
Pro: Flexibility and freedom
One of the biggest benefits of renting instead of buying is that you get more flexibility and freedom. If you want to move to another city, you just have to wait out your lease, and then you can take off without having to worry about selling or renting out your home.
Many landlords also offer month-to-month leases, giving you the freedom to pick up and leave at a moment’s notice. Plus, some lease agreements allow you to sublease, so if you want to leave your place early, you just need to find someone to rent out the space.
Pro: Fewer responsibilities
As a renter, you don’t need to bear the burden of taking care of repairs on your own. When something breaks, you just message your landlord to come fix it.
As a renter, you also probably don’t have to worry about keeping up with yard work or other homeowner maintenance tasks.
Pro: It may be cheaper
The costs of owning a home go well beyond the down payment and monthly mortgage payments. You need to foot the bill for all repairs and maintenance tasks, and depending on where you live, you may also need to pay homeowners association fees.
You’ll also need to pay for homeowners insurance, property taxes (which are sometimes rolled in with your mortgage) and school taxes, regardless of whether you have children or not.
When you add up all of these costs, you may find that renting is the cheaper option.
Con: Rent may increase at any time
One of the biggest downsides to consider with renting is that, unfortunately, your rent may increase. It’s crucial to read over your rental agreement. Some agreements even state that your landlord can increase your rent mid-tenancy.
Even if they can’t do this, there’s nothing to stop them from increasing your rent once your lease is up. The unpredictability of rent prices can make it hard for you to budget your money.
Con: Less control over your space
If you live for home remodeling shows and you’re constantly updating your home decor board on Pinterest, renting a space may feel too constricting. When you rent, you can’t make any changes to your home or apartment without the approval of your landlord.
In most cases, this means you can’t paint the walls, redo the flooring or upgrade the appliances without express permission from your landlord. If you want more control over the look of your space, buying is the answer.
Additionally, keep in mind that pet policies vary from landlord to landlord. Many places have a “no pets” policy, so if you own a pet or plan to get one, renting can be difficult.
Con: No tax benefits
Also, renting usually doesn’t come with any tax benefits. Although some states, such as California and Minnesota, offer a renter’s tax credit.
However, not all states offer these credits. For the states that do offer these credits, there is specific criteria you’ll need to meet to qualify. For example, to receive the tax credit in California, your income needs to be $43,533 or less if your filing status is single and $87,066 or less if you’re filing jointly.
Who’s CEO of buying a house? – You are, if you want
Well, you did it. You’ve thought about the pros and cons of buying a house and made your decision. Happy house hunting – or not … yet!
Take the first step toward buying a home.
Get approved. See what you qualify for. Start house hunting.
The Short Version
- The pros and cons of buying a house can look different to everyone because of unique life goals and circumstances
- The most important things to consider are hidden costs, financial benefits and how homeownership could affect your quality of life
- When deciding if the cost of homeownership is worth it, use an online affordability calculator that doesn’t leave out important details
State of California Franchise Tax Board. “Nonrefundable renter’s credit.” Retrieved December 2021 from https://www.ftb.ca.gov/file/personal/credits/nonrefundable-renters-credit.html