By Erin Wencl, Branch Manager, La Crosse
At any point in life, your living situation may change due to career moves, family obligations, or just the need for a new adventure. Whether short or long term there is a decision to be made to set down roots in the community and purchase a home or leave your options open by renting. Here are some important considerations to keep in mind as you make your decision.
- Equity and Value. Your home’s value increases over time and the longer you own a home, the more equity you build. But what is equity? Home equity is the difference between how much your home is worth and how much you owe on the mortgage. If the purchase price of your home is $180,000 and you make an $18,000 down payment, your mortgage loan will be $162,000 and you have $18,000 in equity in your home. Five years later, the appreciated value of your home is $200,000 and your mortgage loan balance is $145,000, you will have $55,000 in home equity. This equity will help you in the long run when you are looking to sell your house and purchase another one, or purchase a HELOC (Home Equity Line of Credit) to use for home repairs, educational expenses, or emergency medical bills, etc.
- Predictability and Budgeting. Your mortgage loan payments will most likely be on a fixed term, meaning the payments will not change. Unlike rent which can change at the end of each lease, the consistent loan payments make it very easy to create your household budget.
- Home Loans Build Credit. Home loan payments help to build your positive credit. Credit unions report mortgage and other loan repayments to credit bureaus, helping you build a credit profile and in cases of positive credit situations, making your future borrowing easier. A landlord, on the other hand, will not report on-time, accurate rent payments to credit bureaus. So it’s not unusual for long term renters have a less complete credit history than homeowners.
- It Has Additional Benefits. Keep in mind that there are tax benefits to owning your home. Homeowners are able to deduct the mortgage interest and property tax payments on their taxes come April 15th.
- It’s a Commitment! Things to keep in mind:
- This is a long-term financial commitment. Think about when the right time is to switch from a temporary (12-month or month-to-month) lease to an ongoing commitment.
- You are the landlord. You are responsible for all maintenance labor and costs. This also means you’re not restricted to home improvement choices, pets, etc.
- There are additional upfront costs like a down payment and closing cost.
- Less Costly. While rental properties usually include less square footage and restrictions on home improvements and pets, the monthly cost is usually less expensive than a mortgage. Many rents also include related living expenses like utilities, garbage pickups, water/sewage expenses, and others. Rentals that cover housing and living expenses in one sum can be a good solution while you prepare for homeownership and save for a down payment.
- More flexible. If you’re possibly moving from the area, or even interested in living in another neighborhood in your town, renting might be a better solution. Think of it as a lower cost way of test driving a new city or neighborhood!
Overall, it’s important to consider all the costs, benefits, and responsibilities. You may need to adjust your budget in order to make the change from renting to paying a mortgage each month. Adjusting your budget could require some minor, or drastic, lifestyle changes. Do your homework, find a good home inspector and consider any findings before you make an offer – are you prepared to put in the time and effort of maintaining and repairing your home?
Marine Credit Union has helped thousands of homeowners make the leap from renters to owners. Contact our mortgage lenders to start the process to homeownership today! Not sure you’re ready for homeownership? That’s OK too! We can help you get on the right track for your future. Visit MarineCU.com for more information!