Should I Buy or Continue Renting?
By Sharon Secor,
LendersMark.org Staff Writer
Homeownership has achieved near mythic status as an essential element of the American Dream. So deeply ingrained has this concept of the American Dream become that it is all too easy to forget that at the turn of the 20th century, just 36.5 percent of Americans owned their own homes. When making the decision of whether or not now is the right time to buy a house, it is important to take the time to separate the facts from the myths relating to homeownership and its benefits.
Isn’t Homeownership Always The Best Choice?
While the rates of homeownership was fairly low at the turn of the 20 th century, at the turn of the 21 st century more Americans owned their homes than have since records on the subject began to be carefully kept. The prevailing popular opinion concerning renting a home is that the renter is just throwing money away, rather than investing that money into something that belongs to him or her. Many believe that homeownership is the best option for anybody who can wrangle a way to achieve it. However, this may not always be true.
One of the reasons that homeownership increased so dramatically during the past couple of decades is that home lending loosened. This allowed people who, in earlier periods of tighter credit regulations and stricter lending practices, would not have been able to get a mortgage to buy homes. This has certainly been good for many borrowers. However, there are also many borrowers who have seen their overall quality of life reduced by making the switch from renting to owning their home.
Sub-prime lending, or lending to those with credit challenges, like bad credit or no credit, has helped to fuel the growth of homeownership. For some people, consistently making the monthly mortgage payments – especially with the higher rates of interest that they are likely to have in the sub-prime lending group – in addition to meeting the other financial obligations of homeownership can be financially overwhelming. After all, it is not only the mortgage that has to be paid, but also the taxes, insurance, repairs, and so on. If the furnace blows, the plumbing fails, or the roof falls, it is the homeowner’s responsibility.
For many, renting can provide a better home in a better area than they could afford to buy and is cheaper than owning. And, the money saved during the renting period could be saved and invested at a higher rate of return. The period of time spent renting and saving could also be used to repair and improve credit, so that when the time does come to buy a house, it will be possible to get a mortgage with more favorable terms, conditions and interest rates.
Homeownership right now is not always the best choice. Sometimes, the smarter financial choice is to rent and save, while working towards improving credit and achieving other life stabilizing goals, such as finishing education and progressing in a solid career.
When Is Home Ownership The Smart Choice?
There are many advantages to homeownership and in many circumstances it is the smart choice. Often, it is a matter of timing. There are points in the life cycle that owning a home makes more sense than at others.
For those just starting out in life, buying a home may be premature, as it is harder to move when there is a house to sell first. Therefore, it may be smarter to wait to buy a home until other life decisions have been made, such as career choices, the area that one wants to live, and whether one wants to marry and start a family.
When such life choices are settled, then many of the benefits of homeownership are more useful. Instead of paying rent, the homeowner is building equity. Because that is a process that takes place over time, its value isn’t fully realized unless it is in a place that a person intends to stay for a while. There are a variety of tax advantages attached to homeownership, as well. Furthermore, if you take your time and choose well, and have the added advantage of savings and good credit, owning can work out to be less expensive than renting. Typically, though, accumulating enough savings and building reliable credit are achieved at a later point in the life cycle, rather than being available to those just starting out.
Homeownership is a smart choice when you have reached a more stable plateau in your life. You’ve decided on a life path and are taking the steps you need to achieve it. You have accumulated enough savings or have reached a point where your income is secure, and the risk of defaulting on a loan and seriously damaging your credit rating is minimal. At that point, the benefits to homeownership outweigh the disadvantages, and you are ready to start shopping for the right loan and home for you.
Making the decision to buy a home is a serious one, and should be made according to the facts, rather than an idealized vision of how life should be. Achieving the American Dream of homeownership is certainly a worthwhile goal, but keeping that dream and being able to have the time and energy to enjoy it after you achieve it is just as important as reaching that goal.
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