Buying a home is one of the biggest life decisions that many people make. It may also be one of the best decisions, due to the many benefits that come with home ownership. Beyond the widely recognized of increased net worth and available tax deductions, the benefits of owning a home include advantages that can have a long-term impact on personal finances, retirement, and even community involvement. But some may still be skeptical about the value of buying a home due to several common misconceptions about buying real estate. There is quite a bit of popular misinformation out there that may keep otherwise qualified buyers from purchasing a home. Whether this misinformation focuses on the size of down payment required or a belief that renting a home is less expensive, there are a number of perceived barriers to home ownership that, upon closer inspection, are often quite easy to overcome. So while purchasing a home may be something of a process, it is one well worth undertaking.

Why Buy a Home?

There are many reasons to buy a home. Perhaps you are looking to put down permanent roots somewhere as you prepare to start a family. Or perhaps you want to invest in your future with real property that will likely increase in value the longer it is owned. These are both important reasons to buy a home, but there are a few more that should be added to this list.

One of these reasons is the ability to customize your home to your needs and particular style. While some may be lucky enough to find the perfect home during their real estate search, for others the ideal home emerges only after a bit of remodeling and creativity. Our living spaces have an important influence on our personal well-being. According to a recent study by the Affordable Housing Reader, the action of home ownership is a commitment to strengthening families and good citizenship. It enables people to have greater control and exercise more responsibility over their living environment and helps stabilize neighborhoods and strengthen communities. On a more personal level, home ownership contributes to life satisfaction. Buying one’s own home is often a goal in the life of a person and people who achieve such goal find satisfaction in maintaining and improving their own homes. [RS-1] Living in a home that does not meet your needs can be frustrating, if not downright uncomfortable. But most landlords won’t allow tenants to make significant structural or aesthetic changes to a home. When you buy your own home, you are free to create the living environment that you need for optimal health and comfort.

Another important reason is the way in which buying a home allows you to become part of a community in a way that renting often does not. As a homeowner, people are more likely to get to know their neighbors and become involved in community concerns. For this reason, purchasing a home is both a financial and a personal investment. When you own your home, it may increase your desire to contribute to the quality and safety of your community. Many who buy a home are planning to stay for many years, and are planning not only for their own futures, but those of their children as well. Being a homeowner encourages a kind of relationship with your community that being a renter usually doesn’t, a relationship capable of returning the support you have given, when and if required.

Benefits of Homeownership

When we think about the benefits of homeownership, we often think of the financial perks first. And we’re not wrong to do so – there are many compelling financial reasons to purchase a home. One of the benefits we hear about most often is that real property can build equity over time. When you make those mortgage payments every month, you are in effect increasing your net worth by moving one step closer to owning your property outright. But you don’t have to wait until you’ve paid off your mortgage to tap into the advantages of home equity. As time goes by, many homes increase in value even as the amount borrowed against it goes down. The difference between the home’s market value and the amount still owed on the house is called equity. In many circumstances, this equity can be borrowed against to pay for future expenses, such as college tuition, weddings, or vacations.

Other benefits of building equity in a house come into play if and when you decide to sell. Depending on how long you’ve owned the home and what condition it’s in, you might be able to sell the home for more than the original purchase price. Some people buy a home, pay it off, and then keep the property until they are ready to retire. In this case, the sale of the home becomes part of their retirement funds.

One benefit that often comes up around tax time is the potential income tax deductions that are available to homeowners, but not to those who rent. When it comes to paying income taxes, generally the more deductions you can take to reduce your taxable income, the better. For many homeowners, they are able to deduct the interest they pay each year on their mortgage loan and possibly some of their other costs. This is one of the big financial advantages of buying as opposed to renting – no part of a rent payment is tax deductible.

While these benefits are compelling, there is evidence to suggest that the personal and financial advantages of owning a home go beyond equity and tax deductions. Recent studies based on census data have shown that people who buy a home tend to be more financially stable than those who do not. While it makes sense to think that those who already have a degree of financial stability are the same people buying houses, the reverse also seems to be true. That means that those who buy a home are more likely to become more financially stable in the long term. Industry experts theorize that this financial stability comes from the stabilizing effect that home ownership has on household finances. People who own a home, regardless of the value of that home, tend to have a higher net worth than those who do not. Statistics also show that people who own a home tend to have lower rates of poverty, larger retirement accounts, and more investments as a whole. They also tend to have more saved up for college educations for their kids. While home ownership is no guarantee, the data suggests a strong correlation between owning a home and financial stability that should not be ignored.

To put the financial side into an easy to understand form, look at the following graph. This indicates the general structure of home value versus the mortgage payment on it. It is a good idea to invest in a home from a financial side of things. This is because the mortgage will reduce while the property value holds or increase over time. The equity builds, the value rises, and the mortgage is reduced with proper financial responsibility in play. And things get even more clear when you start to compare the rental life time costs, versus that of owning a house. With homeownership, comes potential for returns on the investment. With rental, no such benefit exists. [RS-3]

What these intriguing statistics seem to suggest is that buying a home is not just about finding a place to live. There are many clear benefits that extend beyond the market value of the property itself, benefits that may contribute to a financially successful life for more than one generation. The value of setting yourself and your children on a pathway to financial stability far outweighs any hurdles you may encounter during the initial purchase process.

In the article “Measuring the External Benefits of Homeownership” published in the Journal of Urban Economics, Edward Coulson and Herman Li describe three benefits of owning a home. The first relates to the idea of maintenance and appearance of a home. A home owner tends to be hard working and often maintenance will be undertaken by the home owner him/herself. The second to the idea of raising children in owned homes. There is evidence that points to the fact that children that grow up in owner homes have higher school graduation rates and cognitive test scores. These advantages play out in the life of the child and further create external benefits. There may also be a sense of values instilled on the child from being associated with a home owner. And the third pertains to citizenship effects. Home owners are more involved with local organizations and community and tend to have greater knowledge of their locally elected officials. They also vote more often. All these point to homeowners being as a group, more productive people in society. Are you ready to join this group? If so, keep reading. [RS-2]

Renting versus Buying: Some Coming Misconceptions

With so many advantages to home ownership, it’s hard to imagine a good reason not to buy a home. But one common misconception about the cost of purchasing a home often persists, even in light of evidence to the contrary. It is true: buying a home costs money. Many look at the short-term costs of renting a home, and after comparing them to the initial costs of purchasing a home, decide that renting is the cheaper option. This topic continues to be hotly debated, because those making the case for the lower costs of renting often exclude certain costs, including the long-term costs associated with renting a home.

The costs of renting a home seem easy to tally at first. Most leases require a security deposit up front, along with an application or other administrative fees. When compared to a down payment on a real estate purchase, that deposit can look quite small. The monthly rent is usually considered the main expense, and may include additional services like landscape maintenance, some utilities, or access to community amenities, such as a swimming pool. Many landlords require tenants to carry renter’s insurance, as well. And if pets are allowed, typically there will be additional fees or security deposits required to cover any potential damage they cause. But the landlord is responsible for maintenance and repairs, which means that those costs are something a renter will not need to budget for.

The costs of buying a home make a somewhat longer list, at least at first. Perhaps the biggest and most misunderstood cost of buying a home is the down payment. Many people believe that you need to have at least 20% of the purchase price in cash before you can buy. There are also closing costs to consider, which are incurred when you close on your mortgage loan. The amount of closing costs you’ll be asked to pay will vary from lender to lender, but often total in the thousands of dollars. Most lenders also require you to purchase homeowner’s insurance before they’ll close your loan, an insurance policy different from mortgage insurance, if they charge you for that, too. Homeowners are responsible to pay property taxes on their homes, as well as any maintenance and repairs the home may require.

So looking at it this way, the monetary costs of renting a home may seem lower than buying a home. While it is true that buying a home often requires a bit more cash up front, there are additional costs related to renting that the list above simply does not take into account. Rents in many areas are soaring, causing steep increases that may make quality and appropriate housing financially out of reach. As rents go up, the landlord can choose to increase your rent as well, and unfortunately, there’s little you can do about it. Whether you were planning to stay in your rental home long-term or not, the amount you pay and the length of your lease are determined by your landlord. With so little control over these aspects of renting a home, it may cost you most than you think if you are forced to move when your lease term is up.

With a low interest rate, you may be surprised to discover that a mortgage payment can be lower than rent on a comparable property. Many mortgages are structured so that you pay the same amount each month over the entire life of the loan. If this is the case, that means that your mortgage payment will never go up. What you pay each month the first year of your mortgage is the same amount you’ll pay twenty years from now, when your income might be much higher. And then there is the potential to build equity with your home, a valuable asset that can be drawn upon in the event of future expenses or emergencies. When you think about buying a home in the long term, you start to see what missing out on all these benefits can really cost you in the end.

While the financial benefits of home ownership seem hard to dispute, there’s more. When you think about the costs of renting, it’s important to realize that it’s not just about the money. Lost opportunities must be factored into the equation as well. For example, if you want to customize your rental home, you must often request permission from the landlord to do so. If they don’t like the changes you want to make, they may reject your request. If you do make improvements to the property while you live there, you will often be forced to leave them behind when you move. Any money or time invested in making your rental home beautiful will be lost when your lease ends. Lost to you, anyway, but not your landlord. In fact, the owner of the rental property may benefit from your efforts, as well as from the fact that you have been paying their mortgage for them every month.

So while there is much to consider when choosing to rent or buy, the question of what you can afford should include more than just deciding which is cheaper, a down payment or a security deposit. In the long run, can you really afford to lose out on the kind of benefits and future potential that home ownership has to offer?

More Common Misconceptions

As we’ve already seen, it’s a common misconception that renting a home is cheaper than buying one, largely due to the down payment. Many people perceive the down payment as an insurmountable hurdle in their plans to own a home, but with the right information, it doesn’t have to be. The common misconception about down payments is that you must have a minimum of 20% of the purchase price of the home ready to pay up front. In reality, this is not true at all. The FHA regularly backs mortgages with a down payment of anywhere from 3.5% to 10% of the purchase price, based on your credit score. Also, if you are a first-time home buyer, a teacher, or a member of the military, there are a number of down payment assistance programs that may be available to you. It’s worth doing a bit of homework to see what’s out there before giving up on your dreams.

Another common misconception about buying a home is that you need a perfect credit score to qualify for a mortgage. Again, this is not the case. Although a credit score of 580 or above is usually considered ideal, there are loans available for people with credit scores as low as 500. It’s important to get all of the necessary facts before you decide that home ownership isn’t right for you, and that includes investigating available loan options for credit scores in all ranges.

Another thing people should do, but often don’t, is “shop” your mortgage lender. Many people believe that if you work with more than one mortgage lender for approval it will make your credit score go down. In reality, shopping multiple lenders is an important step toward making sure you’ve got the best possible terms and interest rate for your loan. Not all mortgage lenders are created equal, and you might be surprised at how much difference there is between them. Finding the right loan for your needs can make your goal of home ownership a pleasant reality.

Finally, there are some who find the thought of closing costs, inspections, and real estate agent commissions unappealing. They worry that if they try to buy a home, everyone involved in the process will be out to get as much of their money as they can. While it’s true that there are costs associated with buying a home, it’s also true that when it comes to buying real estate, pinching pennies usually doesn’t end well for you. Just as you would in other service fields, hiring the right experts for the job is important to the success of any real estate purchase. Trying to avoid paying a real estate commission, for example, might lead to missing out on your dream home because you don’t know how to negotiate an offer correctly, or because you never even heard about the property in the first place. Real estate agents do much more than write up offers and show you prospective homes. They should be your trusted guide through the sometimes-murky world of real estate sales and can make your home buying experience as pleasant and painless as possible.

When the decision to use a broker is accounted for, buyers do not wind up paying more for their homes, and there is some evidence that they actually pay less than a comparable buyer who buys without an agent's assistance. When it comes to real estate agents, you need someone you can trust to have the right information and expertise. With the Chicotsky Real Estate Group at Briggs Freeman Sotheby's International Realty, you’ll find the professionals who can offer a unique, hands-on approach combined with a deep-seeded local knowledge of the real estate market.