How long you plan to stay in the area
If you plan to stay in an area only a short period, renting may be economically advantageous. The costs of buying a house (realtor's commission and closing costs), moving (hiring a mover or renting a truck) and getting a mortgage (points and loan origination costs) can add up. If the value of the home has not risen by that total when you are ready to sell, you will end up losing money.
Your current housing costs
If you have a great apartment and a great deal on rent, it may be very difficult to own the home you want at anything close to your current costs. Compare rent versus mortgage costs.
If the value of the home you buy goes up, you can profit in a leveraged way.
Let us assume you buy a home for $150,000 with a $25,000 down payment and then sell the home for $175,000 (after all costs). Your cash proceeds would be $50,000, or a doubling of your actual cash investment. In other words, the home appreciated about 17%, and you made 100% on your money. Remember that leverage works in reverse if prices fall.
- There are tax advantages with owning your home.
Many homeowners are able to itemize deductions for mortgage interest and property taxes on their home. This can result in savings when you file your tax return. The IRS also allows you to exclude any gain on selling your house up to $500,000 if you file a joint income tax return and you meet certain requirements. You may want to investigate these tax advantages further or talk to a tax accountant to completely understand the tax advantages.
- You build up equity in your home as you make mortgage payments.
Every mortgage payment you make includes interest and principal repayment. Over time, the principal repayment reduces the remaining amount you owe. In the first few years, most of your payments will be interest. It is in later years that your equity build-up really takes hold.
- Home ownership provides financial flexibility.
Your home may be the most valuable asset you own. It can serve as a reflection of your financial stability and it can even be a source of collateral for other borrowing. With a home equity loan, you essentially are pledging the equity in your home for additional borrowing. Home equity loans can be a low cost way of consolidating any other debts you have, perhaps at a lower interest rate, and you can probably get some income tax benefits along the way.