Misconceptions of First-Time Homebuyers

Misconceptions of First-Time Homebuyers


Realty Biz News writes about misconceptions of first-time homebuyers. The number one misconception:

Misconceptions of First-Time Homebuyers

It’s cheaper to rent than own. This may be true if you’re planning to rent for a short period of time. But, if you’re planning to rent for several years, you might be better off purchasing a home. A fixed-rate mortgage is stable for 15 to 30 years, but rents may increase on average by as much as 5% per year.

Money spent on a mortgage each month is building equity in your pocket rather than the landlords. Something you’ll eventually own is a foundational means to growing wealth. Consider using a rent vs. buy calculator to run the numbers and see if owning makes better financial sense for you in your area.

The Reasons for Buying:

  • The biggest reason is equity build. Equity equals the home’s value minus mortgage debt. Mortgage payments go to the bank and you gradually pay down the mortgage.
  • Landlords generally raise rents, especially if the market for rentals is tight as it is now. If you are already paying a third or more of your income for rent, meeting the rent can get tougher. A mortgage payment is fixed for 30 years.
  • A symptom of inflation is housing going up in price over time. Many cities, across the country, are experiencing increases each year. A seven percent increase in the value of your house each year doubles the price in 10 years and increases your equity.
  • Rental payments are not tax-deductible. The interest paid on a mortgage is deductible on your tax return. You can look at it as Uncle Sam helping you buy your house.
  • Creative control – you want to paint a wall purple, tear out a wall, hang every picture you have, no problem. You don’t have to get permission. You also don’t hear foot traffic from a tenant up above you or a stereo blasting.
  • A house is your castle, your rock. Ownership is stability. A house is private property and for the most part, we still protect private property rights.
  • Think of school. If you have young children, owning a home lets you give the children the stability of staying in the same school district for an extended period. I ought to know. This writer lived in six houses while in grade school.

And for Renting

  • Flexibility – if you don’t know how long you will stay in a particular area, renting works well
  • Career stability – many young people seem to change jobs frequently, renting works well
  • Credit – is either poor or not well established. The good news here for renters is that on-time rental payments can establish credit.
  • Income instability – It is hard to make a long-term commitment to a house when you have worries about a stable income.
  • No maintenance expenses – when something breaks, just call the landlord. Maintenance can add significantly to the cost of home ownership.
  • No down payment – except for the usual first and last monthly pent and a security deposit.
  • You may be able to rent an apartment with all the amenities you desire like a pool, gym, social meeting area, and conference facilities.
  • Richard Green, a professor at the University of Southern California, Los Angeles said, “Housing can be more volatile than you think.”

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