Your home is probably the biggest investment that you'll make in your lifetime. The volatile housing market, money woes and uncertainty at work can make the idea of home ownership downright scary for many first-time home buyers. You want to make the right decision about whether to rent or buy a house, but lacking a crystal ball, what should you do?
When you rent a home or apartment, your money pays for the privilege of exclusive access to the premises for a period of time. Once the time has elapsed, that's it. The money is gone forever.
When you buy a home, however, part of the money you pay each month goes toward paying down the cost of the property and improvements (the building itself). Eventually, you'll own the home in full, and it will belong exclusively to you. Before the housing bubble burst, it was also a good bet that the value of the property would increase, guaranteeing you a tidy profit into the bargain. Even though that may not be true right now, when you qualify for a mortgage and borrow the money to buy a home, the interest you pay can be deducted from your federal and possibly your state income taxes. This will give you a tax break for the life of your mortgage.
There could also be stimulus incentives available through the federal government to help get you into your first home. As a first-time home buyer, you're in a unique position to take advantage of a buyer's market. You don't have to worry about selling your existing home in a weak market to benefit from favorable conditions for buying a new one. Once you have a fixed rate loan in place, your monthly house payments will also remain relatively stable for the life of the loan.
Don't discount the pride of home ownership either. They don't call it the American dream for nothing. Even when times are hard, watching your kids running through the sprinklers on your very own lawn is a delight you're never going to get with a rental. You might not have to own property to put down roots, but property can make you feel that you've finally come home.
A little hesitation is usually an element of any home-buying decision, and that's never been truer than it is today. If you've been struggling over the question, "Should I rent or buy a home?" you've probably run across any number of cost comparisons and recommendations. These are really educated guesses about the future of real estate in the United States. We do know that real estate isn't the rock solid investment that it used to be. It's also true that no matter how long you rent, you'll never build equity or get that money back. When interest rates are low, your source of income is secure and housing markets are stabilizing, buying a home can still be a good deal.
What's the best course of action right now? If you're contemplating a more permanent housing situation, be proactive. Know where the market is headed by watching the real estate news for your area. Track interest rates. The goal here is to time your home purchase carefully. This may be two parts diligence and one part luck, but you can console yourself with the knowledge that you won't be alone.
One good piece of advice: Check your credit score and do any damage control sooner rather than later. If indicators look favorable and you decide to take the home ownership plunge, you'll have cleared one major hurdle already.
Originally Published: Jun 15, 2010