Thinking of your next home? For many, purchasing a home is the largest financial investment of their lifetime. It can open doors to additional financial benefits long into the future, but the decision also requires a lot of responsibility and financial commitment.

Across different lifestyles, financial situations, and goals, buying a home is not always a simple choice. In fact, it might not be the best fit for everyone. We’re here with a rundown of what you should consider to help you decide if homeownership is the right fit for you – before you make a commitment you can’t take back.

THE HIGHLIGHTS OF OWNING YOUR HOME

  • Build equity over time
  • Full responsibility for maintenance and emergencies
  • Build stability and community in one location
  • Complete customization benefits
  • Access to tax benefits

Building Value: Are you building equity?

One of the largest benefits of owning your own home is that you build equity with each payment you make. When you finalize a new home purchase, you’ll typically have a 15-year or a 30-year mortgage. Each time you make a payment on your mortgage loan, you build a bit more equity and get closer to owning your home in full. Historically, properties in California appreciate, or grow in value, over time; since 1990, California properties have an average price appreciation of over 13% per year!  Since your home value increases while your loan balance decreases, this is another way that equity in your property builds.

Having this equity available to you offers additional financial benefits. With equity available to you, you can gain access to additional financial resources, such as a Home Equity Line of Credit (HELOC), allowing you to borrow higher amounts of funds at lower rates than typical personal loans. If you decide to sell the property in the future, it will likely be worth more than it was when you purchased it, providing a nice return on that investment. Alternatively, if you are looking to move out of a property you already own, you can also choose to rent out that property and use it as an additional source of income.

Payments: What determines your home’s monthly payment?

When you sign for a fixed-rate mortgage (as opposed to an adjustable-rate mortgage) to purchase your home, the interest rate is locked in, keeping it the same for the life of the loan. This also means that the principal and interest (P&I) portion of your loan payment stays the same.  If you have an adjustable rate loan, your payment amount can move up or down each time the interest rate changes; make sure you read the terms of your loan agreement carefully!

In addition to P&I, other monthly home costs such as mortgage insurance, homeowners’ insurance, or property taxes may change over time. Even once your mortgage is completely paid off, you’ll still be responsible for monthly insurance costs and annual property taxes – both of which are primarily based on the value of your home.

Management Responsibility: Are you prepared for the unexpected?

As a homeowner, you accept full responsibility for maintaining your property. This includes caring for your yard, appropriate pest control, and for regular repairs (either contacting the appropriate repair team for the issue or fixing it yourself). Just like you assume full responsibility for daily maintenance as a homeowner, you also take on responsibility and cost in the event of an emergency. When you first purchase your home, it’s essential to have a savings fund dedicated to your home. In the event your HVAC system goes out, your refrigerator dies, or you find a ceiling leak after a storm, you’ll want to solve those right away without additional financial stress. Be familiar with your homeowner’s insurance and the coverages it provides to help you with the cost of unexpected, covered repairs.

Ease of Moving: Are you committed to one location?

Typically, homeowners will stay in their home longer than renters do. It’s much more difficult to move after purchasing a home than it is to move from a rental when your lease is ending. For those that prioritize values of community or stability, committing to a house purchase may be the right fit.

Customization: Is making your home your own important to you?

Want to remodel your kitchen or repaint the bedrooms? When you own your home, there’s nothing standing between you and the freedom to customize it. In a rental, you’d have to go through your landlord for approval on any projects or changes to the property can be made, or you may be limited on the options you can choose from (i.e. paint color).

Tax Benefits: What credits are you eligible for?

As a homeowner, there are tax credits available to you that are designed to offset some of the costs associated with homeownership. On their website, the IRS provides detailed information on deductible home expenses and the Mortgage Interest Credit.

WHY RENTING MIGHT BE THE RIGHT FIT FOR YOU

  • Lower monthly payments
  • Rent payments may change over time
  • Little to no responsibility for managing the property
  • You can move more easily when you need or want to
  • Often have access to additional amenities

Building Value: Where do your home payments go?

When deciding to rent, one of the major drawbacks is that when you make a rent payment, you aren’t building any equity. Your payments go directly to letting you borrow the space; it’s not a financial investment.

While renting doesn’t build your assets over time, rent payments can offer more flexibility. Typically, rent costs are lower than mortgage payments. So, if you aren’t ready to purchase a house yet, or if you decide that homeownership just isn’t for you, you’ll have additional income available for savings or investments that might fill some of the financial gaps that a lack of home equity creates.

Payments: Will your payments increase with time?

When renting, your payments will be fixed for the entirety of your lease, but it is common for rent payments to increase at each lease renewal (typically every 12 months). You landlord will have control over these payment increases. High, unexpected increases can lead to significant obstacles, such as being priced out or evicted from your unit. There are laws in place to protect renters from these situations, such as California’s protections against rent hikes, which prevents landlords from raising rent more than 10% over one year.

Management Responsibility: Do you want to manage the property?

When you opt for a rental, you have little to no responsibility when it comes to regular maintenance. This can be perfect for individuals with little to no knowledge of repairs or landscaping, or for those with limited time. Maintaining these areas is as simple as contacting your landlord or maintenance team to get the issue looked at and fixed. As a renter, your landlord is still responsible for solving any emergency tasks regarding your home in a timely manner.

To ensure you and your belongings are fully protected in these cases, renters’ insurance offers additional protection for situations such as leaks and water damage, theft, or fire. For some properties, renters’ insurance is required in lease agreements.

Ease of Moving: Do you plan to move locations soon?

If changing locations of your home is important to you or if you’re uncertain how long you’ll stay in the same area, renting may be a helpful solution. Renting provides more freedom to move when you want to, allowing you to make quicker decisions if you decide to follow your job, family or relationships, or you just need a fresh start.

Amenities: What benefits do you have access to?

Many modern apartments have built-in benefits, such as security features or gyms. Access to these features can be very convenient for renters and would often cost a lot more if you were taking on the full cost as a homeowner.