More and more Americans are becoming homeowners later in life—or not at all. So if you’re currently a renter, what does that mean for you? Is buying a home a wise investment, or is it better to keep renting? The answer depends on your personal situation.
Owning a Home Has Plenty of Perks
You might be currently enjoying the benefits of being a renter—think included utilities, free maintenance repairs and an easier ability to move, among others. Naturally, becoming a homeowner means trading out these benefits for others. Here are the many perks that are exclusive to homeownership:
- A house builds equity. As you pay off your mortgage, your home can grow equity, which is your home’s market value minus what you still owe. Equity is a powerful tool, as you can borrow against it with a home equity loan or line of credit. These home equity products typically have great terms and interest rates. They 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 your mortgage interest payments.1 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 an in-law suite, you have options for what part of your property you rent out. 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, but you don’t know if you’re ready to stop renting? Here are a few steps to help you get ready:
- Speak with a financial professional. Meeting with a professional, such as an accountant, mortgage broker or one of Navy Federal Financial Group’s financial advisors can help you align your finances with the goal of eventual homeownership.
- Improve your credit score. If you decide to apply for a mortgage, your credit score will be taken into consideration. Even if you have a good credit score, you may become eligible for better interest rates by improving your score even more. Learn techniques for improving your credit score.
- Acquaint yourself with first-time homebuyer programs. If you have never owned a home or haven’t owned one in the past three years, you’re considered a first-time homebuyer. Being a first-time buyer makes you eligible for special loans that may let you skip the need for private mortgage insurance while requiring little to no money down. Learn about Navy Federal’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, you might not be the best candidate to own a home. Homeownership is better suited to somebody who knows which area they want to call home and has a secure job in the area.
- 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 Credit Union, we hope to be your guide through life’s big milestones. Whether you’d like to further weigh the decision to buy a home or you’re ready to start shopping for a mortgage, we’re here to help.
1Mortgage interest will not be deductible if the borrowed funds were used for a purpose other than buying, building or making substantial improvements to your home. 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.