Home Purchase or Rent: Pros and Cons Comparison
Author: Thomas C. Weiss : Contact: Disabled World
Published: 2013-01-12 : (Rev. 2019-03-23)
Synopsis and Key Points:
Article looks at pros and cons of home ownership including mortgage payments and affordability compared to renting.
Owning a home of your own is something many people would like, people with disabilities included. A strong argument against buying a home with little or no down payment is that if a person is unable to afford their mortgage payments they could end up losing their home. Foreclosures do happen and people do lose their jobs, experience forms of disabilities, have large medical bills, or get divorced. If a person loses their home they also lose money, even if they made no down payment. They have also most likely paid closing costs and expenses related to moving. The person is liable for the mortgage and their credit rating will suffer.
An argument against either a low, or no down payment on a home is that the less a person puts down on their home, the higher their monthly mortgage payments will be and the more time it will take for them to own their home. If a person has the ability to make a 20-30% down payment, they might get better terms, such as a somewhat lower interest rate. For these compelling reasons, people might wish to hesitate before they purchase a house with little or no savings. In order to successfully purchase a home with little savings they should have at least a secure source of income.
In American society an argument is that the different between prosperity and not being prosperous is dependent largely upon whether or not a person has a home of their own. For a great many years in this nation, moving into a better home has been a sign of, 'upward mobility,' among households. Today; however, instead of continuing to move up the ladder of housing - Americans have stalled along the path. One of the reasons is that fewer people have the ability to afford the down payment on a home of their own.
Making a Down Payment on a Home, a Barrier
Some people who rent apartments or homes truly enjoy renting and the ability to pack up and move as they wish. They don't like to be bothered with things such as:
- Raking leaves
- Shoveling snow
- Mowing the lawns
- Dealing with plumbers, electricians, carpenters, etc.
Interestingly, a lot of people who rent would like to own a home of their own. They have positive feelings about home ownership. One of the reasons why people who rent feel this way about owning their own home has to do with the fact that rent amounts themselves are increasing. More people who rent are paying 30-50% of their total incomes to a landlord. While there are plenty of vacant apartments in some areas of the nation - rent amounts in general have not declined by any means.
For many people it is hard enough that they cannot afford a down payment to buy a home of their own, all while rent amounts increase each year. There is another issue however. As the prices of homes have dropped recently in many areas of America, they are still fairly high when compared with years gone by.
Financial Benefits Related to Home Ownership
When a person does not own a home it might suggest they are facing a life that is less prosperous, with high rents, no tax benefits, and no appreciation on housing. The majority of people who own a home have the ability to deduct their mortgage interest and their property taxes from their taxable incomes. Due to this ability, people who own a home are more likely to itemize their deductions instead of taking the standard deductions, saving money on their taxes. As taxes have gone up, the value of these tax benefits have increased.
When a person who owns a home is over the age of 55, they have the ability to wipe out $500,000 of their capital gains on the sale of their main home if they have lived their three out of the past five years and meet certain additional requirements. The amount is $250,000 for individuals. Homeowners are also forced to save, meaning that each monthly payment helps to increase their ownership in their home. If a homeowner has purchased a home in a good community and maintained their home, their house will increase in value. Over the long term, housing as a whole as improved the inflation rate.
Homes have appreciated as much as stocks have and often without the volatility of stocks. While there are exceptions, the conclusions should be true for the majority of people over a reasonable period of time when compared with renting. Home ownership should prove to be a solid economic choice.
It is true that unlike those who choose to rent, homeowners have to pay property taxes, pay for maintenance, and of course - their mortgage. Landlord's; however, are in business to make a profit. When a person purchases a home of their own they remove the middle-man. People who own a home effectively become their own landlords and pay themselves what they used to pay a landlord.
A home owner commonly saves more of their income than a person who rents. They are also twice as likely as a person who rents to be saving for retirement, even when compared to those who rent and are of the same age. Maybe people who own homes are just more able to control spending, or it may be due to the tax breaks, or perhaps because they have cut the landlord out of the picture.
As a populations, people who own their homes are older and wealthier than people who rent. A cross section of people in America were asked about the components of the, 'good life,' in a poll conducted by the National Association of Realtors (NAR) and owning a home was mentioned most frequently. One of the reasons people who own a home are happier is that they are more likely to be satisfied with the place they are living. The cost, privacy, security, and desirability of their home as a place to raise children contribute to their perception of a, 'good life.' Home owners were also happy with their neighborhoods, public school system, and safety from crime.
The Argument for a Low, or No Down Payment on a Home
The majority of people who rent want to buy a home of their own, but the down payment is a huge obstacle. Homeowners enjoy all kinds of financial benefits that renters would like to take advantage of, but the question remains - if people who rent do not have the ability to afford a down payment, how can they afford to pay a mortgage, property taxes, pay for maintenance and so forth? One of the answers is that people who rent and give up their landlord now have the ability to use that money for their own home.
In recent years, as rent amounts have increased, the costs related to owning a home have not always climbed as quickly. Even more, homeowners commonly receive tax benefits that can help them to balance their budgets. Being a homeowner appears to psychologically help people save money as well.
While the costs related to home ownership are formidable, they are not as much as the down payment itself. There is little question that people who rent would love to own their own homes. If they could afford the down payment, they would be able to pay for their own homes - at least the government believes so. This is why the federal government helps people who rent to buy a home of their own with small down payments.
Making the transition from renting to becoming a person who owns a home can be stressful and difficult. The rewards; however, can be well worth the effort and the risks. It is important to take steps to lower the risks by purchasing a home in a good community and making sure you have a steady income.
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- 3 - Study of Tiny House Villages - Benefits and Challenges : Kansas State University (2016/10/06)
- 4 - DOJ Files Complaint Against City of LA and CRA/LA Alleging They Fraudulently Obtained Millions in Housing Grants for Disabled : USDOJ Office of Public Affairs (SMO) (2017/08/01)
- 5 - VA Home Loan Versus CFHA Loans : Thomas C. Weiss (2013/05/01)
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- 7 - Guide to Home Buying for People with Disabilities : Total Mortgage Services, LLC (2012/08/15)
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