Buying a first home can be an intimidating process.
But the first step is deciding if: I want to own a home; I can afford to own a home; owning a home makes sense for me financially and emotionally. If you are still struggling with those decisions, here are some facts that might help you take that first step towards becoming a homeowner.
Rents Increase Over Time
Over the past ten years, the cost of rental housing in the U.S. has increased an average of 3% per year. If that trend continues, that means that an apartment or home renting for $1,000 per month will cost more than $1,300 a month in ten years. If you rent the same home for ten years, the total amount you would pay for rent will equal $137,567!
Owning Can Lead to Tax Savings
None of that $137,567 is returned to you, either through savings or as an investment. Homeownership, on the other hand, often has tax advantages over renting a home, and those advantages can help you save money. For many homeowners, part of the monthly mortgage payment “comes back to you” in tax savings.
Buyers Usually Come Out Ahead
Given that price growth has recently deviated from its usual pattern of increase, the table on the next panel considers four different price growth scenarios, including a loss. You may be surprised to see that the homeowner still comes out ahead of the renter even if there is a small decline in the home’s value over the next year. Favorable interest rates and lower prices have ushered in some of the best affordability conditions in a generation.
Homeownership is a Good Investment for Qualified Buyers, But No Investment is Guaranteed
For the majority of Americans, a home is their largest financial asset and a major component of their investment portfolio. The NATIONAL ASSOCIATION OF REALTORS® estimates that home value rises, on average, by 4.5 percent a year. That’s a steady return on investment. Still, no investment is guaranteed. Many Americans lost value in both their homes and investment accounts in the last couple of years, and it will take some time to recover. Even when the recent downturn is considered, one’s own home is a much less volatile asset than stocks, bonds, or mutual funds. And most importantly, it is a place to call home while you own it.
Homeownership Builds Wealth for Households
The Federal Reserve Board estimates that homeowners’ net worth has ranged between 31 and 46 times more than that of renters in the years 1998 to 2007. In 2007, the median net worth for homeowners was $234,200 compared to $5,100 for renters. Even though that difference will surely narrow as a result of house price declines since 2007, homeowners will likely still have substantially greater net worth than renters; NAR estimates 40 times greater net worth among typical owners compared to typical renters in 2010. How do you build up your net worth? As a homeowner, you build wealth in two ways: through paying down the principle on your mortgage and through those “appreciating returns” on your home.