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Want To Be A Homeowner? Read Me First!

Dec 18, 2007
It's great to own your own home. But, owing a home comes with great responsibilities. This is not to say, however, that renting is the better option. You should understand the pros and cons of renting vs. buying and choose which option best suits your financial needs.

BUYING A HOME

Pros

1. Pride of Ownership. A beautiful home and the white picket fence on a piece of land has always been part of the American Dream. The mere fact that you can tell your friends and family that you own the place you live in gives you great joy and pride.

2. Great tax write-off. Not only do you have to pay the monthly mortgage payments, but you also have to consider property taxes and insurance. Property taxes are usually approximately 1.2% of the home purchase price. So in the above example, for a $500,000 home, you are looking to pay approximately $6,000 a year or $500 a month. In addition to the property tax, there is also hazard insurance. The quote on insurance differs from state to state and city to city, so you will have to call your local insurance company to get a quote. But to further illustrate my example, let's assume that the monthly insurance cost is $100 (which is low for a $500,000 home). That means that's another $600 tagged on to your monthly payments. So if you rent, you're looking at a potential saving of $400 + $600 = $1,000 a month!

3. No maintenance costs. When there is a leak in the faucet or if the plumbing breaks, who does the tenant normally call? That's correct, the landlord (or the property manager who works for the owner of the home). The tenant does not have to worry about the normal wear and tear of the home as it is not their responsibility

Cons

1. No pride of ownership. A beautiful home and the white picket fence on a piece of land has always been part of the American Dream. The mere fact that you can tell your friends and family that you own the place you live in gives you great joy and pride.

2. No tax write-off. One of the biggest tax deductions is your home mortgage interest. You are able to reduce your taxable income with the interest you paid on your home. This is one big disadvantage of renters. To see the affects on your income taxes, you will need to consult with your CPA or financial advisor.

3. Rent control. If you are renting in an area where there is no rent control, your rental rate can increase. If the owner increases the rent too high, you may not be able to afford it and be forced to move. Typically, this means you won't be able to move into a nice area because you may not able to rent in the nicer. Therefore, you may be forced to move to a worse location.

Again, this is not to say that renting is the better choice. You have to be able to understand both scenarios before you jump into renting or buying. The article on the Pros and Cons of Homeownership can give you more insights.
About the Author
Steven Chang is a Realtor in California since 2002. Here are 5 Things You Must Know Before Buying Your Home .
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