Even in the best of situations, purchasing a home is not a decision to be made lightly. Ask any four people their opinion, and you’ll likely get five different answers.
It’s not the most reassuring assessment when you’re thinking about dropping tens of thousands of dollars on a home—and that’s just the closing and upfront costs.
In this article, we’re going to focus on taking a long-term viewpoint towards home mortgages and house buying to help you decide if saying goodbye to monthly rent payments is the best option for you.
Buying a home isn’t like leasing the hot new car every two years.
Many times people will buy a particular house based on the short-term cachet of nearness to their job, a popular section of town, etc.
Others like the appeal of some element of the house itself; for example, big backyard, solar panels, or an island kitchen.
While there’s nothing wrong with being influenced by these factors, take a moment and think about five, ten, or more years from now.
Will the trendy neighborhood fall out of favor with next year’s fad? Will the gentrification of an under-developed area stall out, and your plans for making a quick killing not pan out?
The long-term fundamentals—location, number of rooms, condition of the roof, foundation, and pipes—are what will keep you happy for years to come. It’s in the longevity that you’ll begin to see real savings and profits.
Many financial advisors will caution against buying a house because of the many initial and ongoing costs such as closing and moving, repairs, maintenance, etc..
However, the longer you’re in your home, the more these costs amortize, and the more you end up “saving,” especially when compared to rising rental rates.
If your job or company has you moving every three years, yes, buying a home is likely going to be a poor choice. But if you’re looking to put down real roots; if, as soon as you close you’re already making a mark in your calendar 30 years out to note your final payment, buying a house makes much more sense.
Remember, also, that the tax advantages—writing off some of the mortgage interest and some or all of the property tax—continue to benefit you as you move up the corporate ladder or its self-employed equivalent.
LONG-TERM NET WORTH
And even if your thinking isn’t quite so generational, staying in a home for ten, or even five years can result in a significant uptick in your net worth thanks to rising home values and increased equity.
In 2013, Washington University published a report on Homeownership and Wealth among Low- and Moderate-Income Households that showed homeowners with “responsible” mortgages ended up with a higher net worth ($20,000 vs. $15,000) over three years than those who rented.
A separate study, Is Homeownership Still an Effective Means of Building Wealth for Low-income and Minority Households?, from Harvard University came to the same conclusion. The authors, at one point, state, “We conclude that homeownership continues to represent an important opportunity for individuals and families of limited means to accumulate wealth.”
Neither study could point to any one factor that was responsible for this improvement in a homeowner’s financial standing. It may simply be that homeownership, like parenthood, engenders a profound enough change in one’s thinking that—combined with all of the acknowledged benefits of owning a home—results in an increase in net worth over time.
GET RICH(ER) SLOWLY
Financial pundits will often advise you—at volume—of the disadvantages of buying over renting in today’s economy. However, if you approach these disadvantages from a long-term perspective, you may find that many of them disappear, or even turn into advantages.
Want to learn more about the long-term advantages of home ownership? Answer a few questions here, and a home lending expert will contact you.