More and more Americans are becoming homeowners later in life—or not at all. If you’re currently a renter, should you stay that way? Is buying a home a wise investment, or is it better to stay out of the market and keep renting? The answer depends on your personal situation.
Perks of Owning a Home
You might be currently enjoying the benefits of being a renter—possibly included utilities, free maintenance repairs and an easier ability to move, among others. Naturally, becoming a homeowner means trading these benefits for different ones.
These are some of the many perks that are exclusive to homeownership:
- A house builds equity. As you pay off your mortgage, your home can grow equity (the market value of your home minus what you owe on it). Equity is a powerful tool, as you can borrow against it with a home equity loan or line of credit. It can also be used to pay for large expenses, including home remodels and college tuition.
- Mortgage interest payments may be tax deductible. If you’re eligible to itemize deductions, you may be able to write off the interest part of your mortgage payments.* You can expect a pretty hefty deduction, although this benefit has decreased slightly in recent years. The good news is your state may exempt a portion of your home’s value, bumping up the benefits even more.
- Part of the property can be rented out. You can offset some of the costs of homeownership by renting out part of your home. Whether it’s a basement bedroom, the other unit of a duplex or a separate in-law suite, you often have plenty of options. Just be sure to brush up on landlord-tenant law before you put up a “For Rent” sign.
- Owning a property gives you creative control. When you’re in a rental unit, customizing your unit is usually limited. But as a homeowner, you have the freedom to paint walls, replace fixtures, remodel rooms and more to make it fit your needs and style.
Getting Out of the Rent Cycle
Does homeownership sound appealing? If it does, but you don’t know if you’re ready to stop renting, it’s worth looking at how you might break the rent cycle. Here are a few steps to help you get ready:
- Speak with a financial professional. Meeting with a professional, such as an accountant or mortgage broker, can help you align your finances with the goal of eventual homeownership.
- Improve your credit score. If you decide to apply for a mortgage, the bank will take your credit score into consideration. Even if your credit score is decent, you may become eligible for better interest rates by improving your score even more. Check out our Mission: Credit Confidence® Dashboard for tips on improving your credit score.
- Acquaint yourself with first-time homebuyer programs. If you’ve never owned a home or haven’t owned one in the past 3 years, you’re considered a first-time homebuyer. Being a first-time buyer makes you eligible for special loans that may let you skip private mortgage insurance while requiring little to no money down. Learn about Navy Federal Credit Union’s options for first-time homebuyers.
Are You Ready to Own a Home?
There’s a difference between being ready to qualify for a mortgage and being ready to sustain a mortgage. Look for the following signs to know if you’re ready to have a mortgage:
- You have a limited amount of debt. Having some debt (like student and auto loans) isn’t out of the ordinary, but if you’re feeling uneasy about your current loan payments, you might want to reconsider if now is the right time for a mortgage.
- You can afford the monthly payment. When it comes to making monthly mortgage payments, would you be able to make your payments on time, every month? If you have any doubts about that, such as a lack of a consistent income or a history of missing payments, then you might not be ready for a mortgage.
- You’re ready to settle down. If you hop from job to job or don’t stay in one place for very long, the stability of homeownership may feel more like a restriction than a freedom. Homeownership is better suited to somebody who knows which area they want to call home and has a secure job there.
- You can be handy (or can hire help). If something breaks down, will you have the skills to make the repairs yourself—or could you afford to hire someone to do it for you? The emotional and financial costs of being responsible for your own home repairs can be draining on you and your finances.
At Navy Federal, we hope to be your guide through life’s big milestones. Whether you’d like to continue to weigh the decision to buy a home or you’re ready to start shopping for mortgages, we’re here to help.
- Weigh the pros and cons of homeownership vs. renting and decide what’s best for you based on your current situation and goals.
- If you decide to pursue homeownership, take time to get a clearer picture of your finances. Use our calculator to estimate what your monthly payments might be.
- Schedule a meeting with a mortgage broker or personal finance counselor to understand what buying a home would mean for your finances: debt, equity, cash flow and more.
The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes.
Consult with your tax advisor for more information about tax deductibility.
This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.