In the past, young people would rent a home or apartment for their first few years in the workforce before transitioning to a home they bought later on. That hasn't been the case in recent years, as many young people felt the financial pinch brought on by the economic downturn that hit during the final parts of the last decade.
While the economy has recovered in recent years, homebuying has yet to return to its pre-recession highs. According to the U.S. Census Bureau, only 63.4 percent of people in the U.S. are homeowners, the lowest number since the 1960s. The decline in homeownership is a problem, because it means many Americans are not taking advantage of the benefits provided by homeownership.
If you are someone who has thought about buying a home, this is a particularly good time. Consider the following factors that make homebuying preferable to renting, and decide if buying a home is the right decision for you.
1. It might be cheaper
Many people believe that purchasing a home will cost more than paying for a rental each month, but that's not necessarily the case. Homeownership rates are lower than they have been in decades, and many of the people who would traditionally own houses are currently renting. That's driven rental rates through the roof in several of the hottest housing markets across the country, and may make buying a home substantially less expensive than renting an apartment month to month.
"Rental rates are extremely high in several areas."
While buying a house incurs a range of additional costs that renters usually don't have to handle, including upkeep and repairs, it also provides some cost-related benefits. Rental rates generally increase over time as landlords adjust their prices in accordance with economic trends, according to the Motley Fool. That's not true of a fixed-rate mortgage which will keep homebuyer's monthly costs steady for decades.
While this benefit is location dependent, there are several other perks to owning your own home instead of renting from a landlord.
2. You build equity
When you rent a place, you pay for the privilege of living in the space, but don't gain any ownership over the property. That's not the case with a home. When you pay off a mortgage, each payment increases your stake in the house further. This is referred to as building equity in the home. Your equity in the house is calculated by subtracting the amount you still owe on a mortgage from the home's appraised value. Over time, your equity will grow until you eventually own the house outright.
Equity is important because it provides you with financial opportunities. The equity you build in your home is counted as part of your net worth and can be used as collateral for loans in the future. Your home's equity demonstrates to the lender that you're capable of paying back the loan. Of course, this type of loan can be risky, because a default will result in the lender taking your house. For most people, however, increased home equity contributes to greater financial freedom.
3. You can customize your living space
When you rent, you're discouraged from making big changes to your living area. Any work you complete on the space will either need to be removed when you leave or will end up belonging to the landlord.
When you own a house, you can make nearly any modification you want so it suits your needs. This freedom goes beyond simply changing the color of the walls. By changing the appliances and fixtures in a home, you can increase efficiency and cut how much you spend on utilities each month.
"Ownership gives you freedom to modify a space."
With green technologies becoming more prevalent, many homeowners have begun installing ecologically conscious technologies into their houses, according to U.S. News and World Report. Doing so saves the homeowners money and contributes to a healthier planet. That sort of change is not practical when you are a renter.
4. Improved loan availability
Getting a loan has been a hindrance to many potential homeowners. The strict lending requirements introduced by many mortgage originators after the financial crisis were intended to cut down on loan defaults. While fewer people are defaulting on their loans today, these regulations have also made it difficult for many qualified individuals to get the loans they need.
If you are a near-miss borrower who falls outside of the government's narrowly defined guidelines for lending, you may find that an alternative lender can provide the loan access you need to purchase a home and start taking advantage of the benefits homeownership provides. Impac Mortgage Corp. Retail offers the suite of AltQM™ loans, each of which can fit into a different borrower situation. Stop sinking money into a rental property and use an accessible loan from Impac to reap the benefits of home ownership.