For many people, owning a home brings a sense of pride and freedom that cannot be matched by renting. When you own your own home, you aren’t bound by a landlord’s rules, and your monthly payments are building equity. Although buying a home may be the first step you take toward building long-term wealth, it is important to understand the pros and cons of homeownership.
The most obvious advantage of buying a home is that it’s yours. You can paint your walls whatever colour you want, change the landscape, install a basketball hoop, or turn your unfinished basement into a movie theater. Provided you work within any building or zoning regulations, you can do almost anything you want with your home.
Another major benefit of owning a home is that some of your monthly mortgage payment comes back to you in the form of equity. When you pay rent, you will never see any of that money again. On the other hand, part of your mortgage payment will partially be applied to the loan principal, which builds equity. (pending loan structure)
You may be able to tap into the equity of the home while still living in it to make improvements or consolidate debt.
Since your property is an asset, you can make money if you sell it for more than you originally paid.
There may also be additional tax benefits from owning a property. In many cases, if for investment purposes, the mortgage interest and property expenses you pay are deductible, which means you will be lowering your overall tax burden.
COST OF OWNING
Even though there are many positive aspects to buying a home, let’s not overlook the potential drawbacks. If you’re renting and need repairs, you can generally call your front office or landlord, and they’ll fix or replace appliances at no cost to you. When you own your own home, there may be many unexpected repair and maintenance costs that you otherwise wouldn’t have if you were renting.
Another thing to consider is the potential to lose money on the house. Generally speaking, real estate has generally gone up in value, but there are times when the real estate market stays relatively flat, declines or a once in a lifetime pandemic hits. Depending on the costs associated with the purchase and amount you sell the house for, you could lose money.
Finally, buying a home is a long-term proposition. When you rent, you may only be bound to a month-to-month or annual lease, so picking up and moving can be done on relatively short notice. Once you buy a home, it isn’t as easy to pick up and move. You have a significant financial obligation, and the process of selling a home may take a few months to complete before you see any funds.
DETERMINE WHAT YOU CAN AFFORD
If you have decided that buying a home is right for you, the first step is to work out what you can afford.
Next, add up all of your current monthly non-mortgage debt payments and subtract it from your monthly gross income. This number will give you an approximate maximum mortgage payment you can afford once the bank takes their slice. Ideally, this amount should be 28% or less of your monthly income. Even with these guidelines, it is important to remember that your situation will ultimately dictate what you can truly afford, so consider all aspects of your situation.
Chat to your bank or mortgage broker to see where you financially sit with lending and discuss the steps of pre-approval. If you want a referral into this step of discussion feel welcome to give us a call and we can point you in the direction of who to talk to.
TAG ME IN!
Now its time to contact us to discuss buying. We will cover your buying requirements, your ideal goals, what you want to achieve from your first property purchase & what we call “running the numbers” to determine the range of your purchasing price.
And finally, its happy house hunting!