by Angela Fitzgerald
One of the most difficult transitions for me has been becoming a full-fledged adult, as the numerous decisions, responsibilities, and expectations can be overwhelming. I’m still very much a popcorn- for-dinner college student in my head. One adult decision is determining whether to become a homeowner. I faced this decision 6 years ago while still living in Richmond, Virginia. The decision was sort of a no-brainer for me (at the time), as up until that point homeownership was always presented at this positive, financially responsible thing that adults did. Now, having been there and done that, I can view the decision more objectively and critique both the pros and cons that come from purchasing a home.
PROS
• LOW-COST HOUSING
Home ownership may make financial sense in areas where housing costs are relatively low, and especially so when compared to rentals. For example, if the monthly mortgage costs and monthly rental costs are equal, or if the monthly mortgage costs are less than rent for a similarly sized space – then home ownership may make sense. My mortgage is less than many rentals, making it a financially advantageous decision for me.
• INCOME POTENTIAL
As a single, childless new owner of a 3 bedroom/2 ½ bath house – I immediately began to think of ways that I could profit off the additional space that I did not need. I ended up taking on two housemates as tenants, which covered my mortgage and utilities. My room rental experiences weren’t always easy, but were definitely worth it financially. Since moving from Richmond a year ago, I currently rent my home out entirely as another form of income.
• STABILITY
I have never heard a person express that they enjoy moving. Owning a home provides stability as owners do not have to face moving from apartment to apartment every year.
CONS
• MAINTENANCE
You come home from work, excited about the dinner you’ve prepared, only to find that your refrigerator isn’t working. What do you do? As an apartment dweller, you might submit a maintenance request to the leasing office. But as a homeowner, those repairs are entirely on you. Things will naturally break and become worn over time, and home owners bear the financial responsibility to upkeep their homes. These maintenance costs, which include yard work, power washing, roof repairs, window washing, among others, should be included with the cost of the mortgage to give a more accurate depiction of the true cost of home ownership.
• LONG TERM FINANCIAL RESPONSIBILITY
The typical mortgage has a loan term of 30 years. Translated simply, and assuming that no additional payments are made outside of the regular payment schedule, the typical homeowner can end up paying on their mortgage for 30 years. Now, when you get a mortgage to pay for a home, you are provided with an amortization schedule. This amortization schedule factors in the cost of interest and shows you how much you actually end up paying for your home over the life of the mortgage. So that “steal” of a home may actually end up costing twice the original purchase price over a 30 year period. It is important to consider whether you are comfortable with the potential long term financial responsibility of a home purchase.
• PROPERTY TAXES
So you’ve paid off your mortgage and no longer owe the bank for your home. Congratulations! But before adjusting that line item on your budget, make sure to keep factoring in property taxes. Property taxes, along with maintenance and utility costs associated with the home, are those pesky expenses that will never go away. You will always have to pay taxes for the property that you own, and failing to do so could result in your home (yes, even one that no longer carries a mortgage) being taken from you. Many factors contribute to the property tax amount for your area, but they are a certain cost that apartment dwellers do not have to pay.
Looking back, the decision to purchase a home when I did and where I did was a good decision for me. I was able to have low cost housing that produced income for me, and in an area where home values are appreciating and I am likely to make a profit should I decide to sell in the future. Numerous other individual factors should be considered when deciding whether homeownership is the right decision for you, including the cost of home ownership in your area, tax benefits, income potential, etc. There is no absolute right or wrong answer, as wealth can be attained by choosing not to buy a home and instead investing money in other low maintenance directions. The choice is yours to research and make!
Angela is a researcher/program evaluator by day, and crime fighter by night. And by “crime,” she means the perceived inability to turn dreams into reality. She can be reached at browngirlgreenmoney@gmail.com if you’d like to share your money story, chop it over life goals, or all things Shonda Rhimes. Also, check out Brown Girl, Green Money on the book of faces at www.facebook.com/browngirlgreenmoney.