6 reasons to buy a home
Given that the past 10 years, since the recession, we’ve been accustomed to a strong demand for housing with historically low rates, one can’t help but question home values and interest rates now that we’ve entered a Seller’s Market. Here are 6 reasons Homebuying still makes sense, especially for Millennials.
1) Lending guidelines have changed since 2008, creating a stable housing market (lengthy, but stay with me)
The main reason we had a housing bubble was because banks, in the years leading up to 2008, allowed consumers to borrower more than they could realistically afford and on loan terms considered today as predatory lending. The class of home loans issued to these consumers were sub-prime mortgage loans. This 4-mintue video by history.com helps explain. These loans allowed borrowers with poor credit, and nearly no down payment, to borrower loans by stating their income on the application and not being required to support it with documentation.
Fast forward to 2018, lending rules have changed to prevent these kinds of loans and practices ever happening again. You must show the ability-to-repay your mortgage loan to a bank where the Loan Officer and Underwriter assess your loan approval. Basically, the sub-prime days are over so that people can realistically afford their homes. See my recent post on Self-Employed Income and ways to qualify showing the ability-to-repay.
It’s important to note that home valuation practices have also been revised to ensure prices are not over inflated due to under-the-table handshakes and side deals. Appraisers were hit heavily with regulations to ensure home values are represented with integrity based on local market trends and sales data. Buying a home today and selling it tomorrow for 50% – 100% markup is behind us. You only see this now with homes that have undergone extensive remodeling or upgrading, and it’s considered an acceptable practice because the market demands a modern home.
2) Build Equity, Growing your Money
This is probably my favorite reason to own a home because I’ve used my home’s equity to pay off debt and start a business. Equity is the additional value something gains after it’s purchased. Stock in a company builds and gains equity. Your home is similar. Waiting to buy means you lose the compound effect of your equity gain. You can see your cost of waiting by scrolling the page in the link. Be sure to complete the form.
While there are many uses for equity from your home, it’s a good idea to leverage that equity for the future. Please do not use your equity to buy a boat or an RV (unless selling your home to travel the country). Think of your equity as an aspect of your financial planning. You do not want to rely solely on your home’s equity, but it makes for a chuck of your potential savings or retirement in the future.
3) Don’t pay taxes on your equity gains
When you own a home as your primary residence and turn around to sell it later, you do not pay taxes on the equity gains from the sale up to $250,000 if filing single or $500,000 if filing a joint return – IRS Site. For this to work, the home must have been your primary residence and not have converted into a rental property.
4) Fix your monthly expenses
When you purchase a home with a fixed-rate mortgage, you lock your monthly principle and interest payments for a specified term of 15 or 30 years. Property taxes and homeowner’s insurance may fluctuate, but the bulk of your housing payment is fixed. Imagine when you want to renew your lease and the landlord charges an additional $200 to renew. Over several years, that increase adds up and will eventually force you to move, beginning the cycle all over again of moving.
Moving is a silent expense that you don’t realize until it’s too late. I’ve seen someone’s hard earned savings, that adds up to be a down payment on a home, get depleted when moving from one rental to another. Request a Rent vs Buy review by scrolling the page in the link. Be sure to complete the form.
5) Convert your home for cash flow
One objection I’ve heard a lot of lately is uncertainty about where someone wants to live. This may be because of lifestyle or employment opportunities. If you have a relatively stable income and don’t plan on moving for 3 years or so, buy a home. You will thank me later because you will have the option of selling it and taking that equity or converting the home into a rental property.
The demand for housing (rentals and purchases) is only getting stronger. You can have someone else pay the mortgage every month while you realize the equity gains. It’s like someone buying you stock every month in your home. See the chart below: Household Growth and Housing Completions.
6) A place to call home
Financial benefits aside, owning a home gives a sense of pride and fulfillment for our families. Watching our children grow up in a neighborhood and making friends or meeting new people and becoming active in a community are just some of the things that come with owning a home. Last year I helped run a charity picnic with a cornhole tournament. My family and I got to meet some great people and we supported a great cause. It was fun creating memories in the community we call home.
Owning a home is a responsibility and should be taken seriously. The reasons to buy a home in today’s market give consumers financial opportunities for the future. If you’re on the fence about buying a home, it’s worth a call to explore what it means for you. A good lender will give you all the options around the idea and help you decide if it’s a good fit.