Home ownership has long been considered part of the American Dream. It's something most people aspire to without necessarily even weighing the pros and the cons of owning a home. The perceived benefit of pride of ownership is sometimes seen as one of the most important benefits of owning a home, but when it comes to home ownership, especially in a weakened economy, there is much more to consider.
What Are the Pros and Cons of Owning a Home in Today's Economy
It is true that the pride that comes with owning your own home is a great benefit in terms of happiness. It can provide a person or family with a sense of stability, permanence and roots. It gives a sense of freedom in that you can make choices in your home environment in a way you can't in a rented living space. Even with these emotional benefits, if financial pros and cons of owning a home are not considered, home ownership can be a recipe for disaster.
One of the main financial benefits of home ownership is the ability to earn equity in your home. Equity in your home is not automatic though. While you may assume that equity is earned over time, it's important not to overlook the fact that the bulk of a home's equity is acquired at the time of purchase. In order to take advantage of the benefit of earning equity, it's important to maximize the home's earning potential. This means purchasing a home that is not the most expensive home in a neighborhood or a home that is at the top of the market. The key is owning a home that has room to improve and may be undervalued in the market. Having equity in your home provides true financial stability in terms of future borrowing should the need arise, refinancing options, and ultimately money in your pocket when it comes time to sell.
The flip side of earning equity in your home is the possible depreciation in value of your home. As with any investment, purchasing a home is a risk. While historically real estate values increase over time, many homeowners today are learning that equity is not a given. The potential of being upside down on your home loan (owing more than your home is worth) is certainly a potential downside of owning a home in today's economy.
Even if equity is a long way away, home ownership still has a number of financial benefits. Tax benefits are one of the main pros of home ownership in any economic climate. Both interest paid on your mortgage and real estate taxes are deductible. In addition to the tax benefits, every on-time mortgage payment is a step towards equity and a step towards improving your credit score and debt to equity ratio.
The bottom line is that, as with any investment, there are pros and cons to home ownership, and both emotional and financial benefits must be examined before deciding to take that financial step.
