Have you been kicking the tires on purchasing a property or a home of your own? Have you done any research to see what buying a property entails? Are you on the fence about fully committing to buying a property due to the costs or other factors?
There are a ton of factors that go into deciding to move, let alone deciding on a home to buy. To help you sort out if making this big life decision is right for you, here are the pros and cons of owning a property.
The Pros of Owning
The biggest pro to buying your own home is the fact your monthly mortgage payments are helping you build equity as you will eventually own the property once your mortgage has been completely paid. Fully owning a property can only be beneficial to you financially in the long run. If you were to rent an apartment, your monthly payments would not be going towards anything in particular and, therefore, means you are not building up equity.
Another pro to buying and owning your own home is your conventional mortgage payment should not change. Once you lock in your interest rate, your payment will most likely remain the same for the majority of the life of your loan. If you were to rent an apartment, your monthly rent payment would most likely increase every year when you sign a new lease.
The Curious Case of Mortgage Payments Fluctuating
Of course, there are a few exceptions to the mortgage-payment-staying-the-same rule. If property taxes increase, your monthly payment may rise.
First off, an escrow account is typically used to pay off your property taxes. The account is funded via a small portion of your monthly mortgage payment, which puts money every month towards paying your property tax bill. This allows you to essentially pay your property taxes over the course of a calendar year instead of having to pay it all in one lump sum.
If your property taxes increase and there is not enough money in your escrow account to cover the taxes, your monthly mortgage payment will subsequently rise. At first, your mortgage lender will cover the difference between your property taxes and your escrow account, but you will eventually have to pay back the coverage AND cover the increased tax amount moving forward, which is why your mortgage payment will increase (1).
Additionally, your mortgage payment may include private mortgage insurance (PMI). You would be paying PMI every month on your conventional mortgage payment if you made a down payment of less than 20% of your home purchase price or if your home loan was a Federal Housing Administration (FHA) loan.
Here is the good news: you will not have to pay PMI for the life of your conventional mortgage. Once you reach 20% equity in your home, you can request your mortgage lender to remove PMI. If you reach 22% equity—according to your original amortization schedule—or you reach the midway point of your mortgage term, your PMI will be automatically cancelled based on whichever occurs first.
Once your PMI is canceled, your monthly mortgage payments will be lowered.
When it comes to the mortgage insurance on an FHA loan, it is called mortgage insurance premium (MIP). It is a little trickier to get MIP removed from your FHA mortgage payment, but it can be done.
If you closed on your home after June 3, 2013, made a down payment of at least 10% of the purchase price of your home AND you have paid mortgage insurance for at least 11 years, you can remove MIP from your monthly payment, causing your payment to decrease.
If you closed on your home before June 3, 2013, have reached at least 22% equity in your home, the length of your loan is for at least 15 years AND you have paid mortgage insurance for at least five years, you can remove MIP from your monthly payment, causing your payment to decrease.
On the flip side, if you made a down payment on your home that was less than 10% of the home’s purchase price, you will be stuck with MIP for the duration of your FHA loan, no matter how much equity you have put into your property.
With all mortgages, it is required to have homeowners’ insurance as well. In some cases though, your mortgage payment could rise because of your homeowners’ insurance rates. If you find your mortgage payment is rising due to your homeowners’ insurance, you can always research and switch to another insurance company that can provide you with a lower rate. In some cases, your mortgage payment could be lowered by switching providers.
Your mortgage payment may also fluctuate based on if you decide to refinance your mortgage at any point in time. Your monthly payment will be lower if you refinance to a lower interest rate or a new, longer term on your mortgage. Your monthly payment could rise though if you refinance to a shorter loan term, though you should save on some interest if your interest rate is lower than before.
A major, convenient pro when it comes to owning your own home is you can stay in your home for as long as you want. There is no need to re-sign any contracts or leases in order to stay, which is what you would have to do if you were renting an apartment or another a property. Plus, there is no pressure for you to move anywhere else.
Furthermore, a pro to owning your own home is it is yours so you can do whatever you want to it. You do not have to adhere to any apartment complex or landlord rules.
You can landscape your yard however you would like. You can add an addition onto the house at some point. You can remodel the inside of your home however you would like. You can decorate the interior and the exterior of your home however you would like. It is completely up to you. No landlord can tell you otherwise.
Additionally, you can own whatever type of pet you would like, assuming your town does not have any restrictions. If you like giant breed, 100-lbs.+ dogs, you can own one in your home as there would be no weight restrictions like there would be at an apartment complex.
Another great pro about owning your own home is you—most likely—will not have to share any walls with your neighbors, assuming you purchase a single-family home; the only time you would have to share walls would be if you bought a townhome.
If you live in an apartment, a townhome or a condo, you most likely are conscious about keeping the noise levels down within your walls so people on the other sides of your walls do not hear you. In a single-family home, you would not have to worry about that.
Of course, you should still be conscious about the noises you make outside so you do not disturb your neighbors in the lots next to you, but outside noise levels are not as tedious to maintain as inside noise levels are.
The Cons of Owning
A major con of buying and owning a home is you need to come up with a large sum of money for your down payment when you go to purchase your home. The average down payment on a house is 20% of the home’s purchase price (2).
Now, not all 20% payments are created equal. 20% of a home purchase price on a $150,000 house ($30,000) is a lot less than 20% of a home purchase price on a $600,000 house ($120,000).
As of the second fiscal quarter in 2021, the average home price in the United States was $374,900. 20% of that price is $74,980. That is a lot of money.
Of course, you do not need 20% of your home’s purchase price for a down payment, but it is recommended as you will avoid having to pay PMI every month if you meet the threshold. Even if you put 10% down on the average home, you would still need $37,490, which is still a lot of money.
Another big con to buying a property is you have to do all the maintenance on it. There is no landlord that will come around and take care of a leaky pipe or wonky HVAC unit for you. You have to either fix any issues that may arise yourself or hire a professional to fix it for you.
Additionally, you are also responsible for all the in-house cleaning that needs to be done and the upkeep of your yard and landscaping.
If you need to move any time in the future, it may also be a pain to sell your house. Most closings take at least 30 days to complete, so you most likely will not be able to move out of your home quickly. If you were to rent a place, you could be out as soon as your lease expires.
Even if the market is hot and homes are selling like hot cakes, you may not have people willing to buy your home unless you update it. Providing updates to your home can take a lot of time—depending on what you are updating—and can also cost a lot of money. These updates can be major inconveniences and hindrances when you are trying to move.
What About Rent-To-Own?
After reading about the pros and cons to owning a home, are you still not sure if you are ready for such a big purchase and responsibility? Then you may want to look into a rent-to-own agreement.
A rent-to-own agreement could be able to give you the best parts of a rental situation and the best parts of an ownership situation. You would first rent a home and then, once you are ready, you would be able to buy the home outright and customize it the way you have always dreamed of if you think it is the best fit for you and your family.
Before you are ready to purchase it though, a landlord would take care of maintenance on the property, pay taxes on the property and other things of that nature.
These are just a few of the pros and cons to owning a property. The best thing you can do is do your due diligence and conduct as much research as possible to see what type of living situation will best suit your needs.
(1) – Rocket Mortgage
(2) – NerdWallet
(3) – The Ascent