A few words for anyone who hopes to own a home someday but so far hasn’t made that jump. Just a few words about how your life will change when you stop renting and actually buy a home of your own.
Let’s start with your monthly expenses. When you rent a place you pay the landlord every month. Assuming you’re on a lease, that rent check stays the same for about one year. Then it usually increases. Fortune magazine predicted that in 2016 rents would rise around 8%. That would turn a $1000 monthly rent into a $1080 monthly rent. Now this year might not be as bad as that, but in most areas a 3 to 5% increase is expected in 2017. So if you keep on renting you’ll need to budget for those annual rent increases.
Now compare that with having a mortgage. If you get a 30 year fixed rate mortgage, the payment will stay the same year after year. Now just think about that. If your mortgage is $1000 a month this year, it will stay right there. Next year, and the year after that, and the year after that. It will stay right there for 30 years. Now you probably won’t be living there for 30 years but if you are, three decades from now your monthly mortgage payment will still be $1000.
Next, let’s look at your taxes. When you rent you typically don’t itemize deductions. You probably just take the standard deduction. Which is fine but that changes when you buy a place. As a homeowner you get two big deductions that renters don’t. One is your mortgage interest, that could add up to thousands of dollars in deductions. The other is your property taxes, which could easily hit a thousand, maybe more. So every year you could get a bigger tax refund or if you adjust your withholding you could have more spending money every month. Now again, renters don’t get those deductions. But of course you might be thinking renters also don’t have to pay property taxes. That’s true, but in most cases those property taxes are reflected in the amount rent the landlord charges.
Now moving on from the money, let’s look at what you can do with the place. When you rent you can only do what the lease allows. Generally you can paint the place any color you want but might have to repaint it back (to white for instance) when you leave. Now for other changes which could be anything from a new light switch to a ceiling fan to a new fridge or anything else, you’ll need to ask the landlord. Maybe you’ll get it, maybe not. Whatever you do, you need to the landlord’s permission.
Now compare that with owning the place. When you own it you can do anything you want. Anything. Now the changes you make will have to be done according to code, that’s a safety issue, and according to zoning laws (you can’t put a zoo in your backyard). Also, if you have a condo association or homeowners association, you’ll have to follow those rules too. But, paint it, remodel it, change it, make it all yours. You can do all of that with a place you own. It’s yours, so have fun!
Those are just a few of the changes you’ll experience when you make the jump from renting to owning. Other things will happen too but they’ll take more time. Like the way you gradually build wealth because over time real estate values generally grow. And every month you’re paying down that mortgage. So in the long run you’re building equity and that may well become the greatest source of wealth in your life.
So when the time is right and you can comfortably afford to buy and own a home, you can look forward to all things I’ve talked about here. If you decide to make that jump, then I say – welcome home.