While buying a home is an investment, if you are
looking to make money, it's not your best bet. Owning a home usually
doesn't result in more investment return than traditional
financial instruments, such as mutual funds. The stock market has a
long-term average rate of return in the 8% to 10% range. Your home
will probably only appreciate at under 8%. Whether you invest in the
stock market or a home, keep in mind that all investments come with
risk.
Some of the risks associated with homeownership
are balanced out with benefits. For example, the IRS allows you to
deduct part, or all, of your mortgage interest and real estate
taxes. You can only receive the benefits if you pay more in interest
and taxes than the standard deduction. Most homeowners will find
that they are able to tax advantage of this tax benefit, especially
in the early years of a mortgage.
Benefits of homeownership
There are many other benefits to owning a home. You are building
equity as you pay off your mortgage and as your property value
rises. If you take out a fixed-rate mortgage, you know that your
housing costs will be constant for the next couple of decades.
Disadvantages to homeownership
When you own a home, you become responsible. If you rent, you
simply call the landlord when the pipes break. When you own, you
have to handle the problem. You have to remember that you will not
only have to do repairs, you will have to pay for them.
You may not want to jump into owning a home for a variety of
reasons. For example, if you are facing a potential job change, you
may want to wait. Owning a home is a slightly permanent situation.
If you plan on moving soon after purchase, take into account that
closing costs, agent commissions and other fees will add up. If you
sell after living in the home for only a short period of time, it
could cost you.
You have choices
When it comes to real estate, the options are endless. You should
check out all of your options. For example, some middle-ground
approaches to owning a home include leasing with an option to buy or
a contract for a deed situation.
What is seller financing?
With seller financing, the seller is carrying a portion or your
entire mortgage. When you enter a seller financing situation, you
will usually face a higher interest rate, a shorter term and a
potential balloon payment.
Seller financing gives many buyers an opportunity to own a home
without high closing costs to contend with. For those with little
cash on hand, it could be beneficial. But you should be cautious to
make sure that you are protected by the law. If you take out a
primary mortgage and "carry back" a second mortgage through the
seller, you will be paying two monthly mortgage payments. The seller
usually determines the interest rate you will pay, so you could end
up spending more in the long term.
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