In this article:
Why buy a house? Some say it’s a good investment. Others enjoy feeling a sense of pride as homeowners. But do these things make buying a house worth the cost and commitment?
Where you want to buy a home, your finances, and your long term goals will all play a big role in what type of value you get out of purchasing a home. Take some time to think about why you want to buy a home and what you’re hoping to get out of the experience.
While you mull that over, let’s look at some of the benefits of homeownership that can help you determine if buying a house is worth it, if 2021 is a good time to buy, and when you might want to pause your search for a home sweet home.
Why is buying a house worth it?
House hunting comes with some major sticker shock that can make you wonder if buying a house is worth it or not. The answer depends on your financial health, as well as your lifestyle and financial goals. Let’s take a look at some of the benefits of buying a home to see if they line up with your needs.
Helps save for retirement
Buying a home when you’re young and working towards paying off the mortgage is a great way to save for and prepare for retirement. By paying off a mortgage during your working years, you’ll have more financial flexibility when it comes time to retire.
One of the main perks of buying a home is that, eventually, you’ll own it outright. This is a huge benefit, especially if you’re able to arrange paying off your mortgage before you retire. Once you pay off your mortgage, your monthly spending on housing costs will drop, and you’ll be able to stretch your retirement savings and income further.
You’ll also have the option of selling your house and downsizing. Once your family is grown, you can choose to move to a smaller house, and if you’re not working you can move further away from pricey cities.
Forces you to save money
When you rent, your monthly payments only go towards housing you for that month. When you buy a home, you’re building long-term wealth as every time you make a mortgage payment, you pay down the debt you owe and earn equity in your house.
Then, if you choose to sell your home one day, you’ll have that equity available to use for retirement or big purchases just like if you’d put the money you paid for your home into a savings account slowly over time.
When you buy a home and make a payment each month towards your mortgage, in a sense you’re forced to save a large sum of money. If you struggle to work towards savings goals or get overwhelmed by investing, buying a home can make it much simpler for you to save money for your future each month.
Enjoy homeowner tax breaks
If you pay a lot of taxes every year, you can use your home as a way to get your hands on some tax benefits. Let’s look at a few tax breaks that homeowners can qualify for.
Mortgage interest tax deduction
If you are married and own a home, you can deduct the mortgage interest you pay on the first $750,000 if you file jointly or on the first $375,000 if you are married and filing separately. Higher limitations can apply if you deduct mortgage interest from a mortgage that you accrued before December 16, 2017.
Mortgage tax credit
Lower-income households that earned a qualified Mortgage Credit Certificate (MCC) to buy a home can get a tax credit worth 10% to 50% of the mortgage interest they paid that year.
Home sale tax exclusion
If you choose to sell your home, you can catch a break when it comes to capital gains. If you’re a single homeowner, you can get a tax break on capital gains up to $250,000. If you’re married and filing jointly, that number goes up to $500,000. However, you will have to pay taxes on any profits that pass those thresholds.
Designing a home you love
While renting can be super convenient when you need a repair done or want some flexibility in your life, renting can also put some major limitations on how you design your living space. When you own your own home, you can paint rooms whatever colors you like, use nails to add art or shelves to the walls, and can renovate to your heart’s desire.
The National Association of REALTORS® Research Group’s 2019 Remodeling Impact Report found that after they remodeled, 74% of homeowners felt a greater desire to spend time in their homes and 65% felt increased enjoyment in their homes. Roll up your sleeves and spend some time watching HGTV, so you can show your home (and yourself) some love!
Make space for your family to grow
If you want to have kids, move an elderly parent in, or are hoping to welcome a pet or two to the family, buying a home gives you room to grow your family. It can be hard to find affordable rentals that are large enough to house a full family and many don’t allow pets. Buying a home can help you design a life that suits the needs of you and your loved ones.
Is 2021 a good time to buy a house?
There’s been a lot of talk lately about whether or not 2021 is a good time to purchase a home. While horror stories of bidding wars may turn you off from buying a home, despite the increased competition, 2021 actually is a great time to purchase a home. Here’s why:
Home prices are expected to go up
Even if prices are high right now, real estate insiders are just expecting those home prices to rise throughout 2021. Buying now can actually save you money, even if you’ll pay more than you would have in 2019. Luckily, home prices aren’t estimated to rise as fast in 2021 as they did in 2020. According to an average of forecasts from Fannie Mae, Freddie Mac, the National Association of Realtors and the Mortgage Bankers Association, this year they’re only expected to increase by 5.9%, compared to 10% in 2020. Even though prices are on the rise, they have no sign of stopping, which can make 2021 a good time to buy in comparison to next year.
Mortgage rates are low
Even though home prices could go up, mortgage rates are staying low which can help balance out the increased cost of homes. Economists expect mortgage rates to remain low in 2021 after falling to historic lows in 2020.
As of April, 2021, the Federal Reserve says that the federal funds rate will remain unchanged until certain economic factors show signs that we’re looking at consistent recovery from the impact of the coronavirus pandemic. The average 30-year fixed-rate mortgage is expected to be 3.15% in 2021, according to forecasts by Fannie Mae, Freddie Mac, the National Association of Realtors and the Mortgage Bankers Association. Locking in a low mortgage rate in 2021 can save you a lot of money in the long run. That being said, you should still shop around for the best rate with lenders so you can save as much money as possible.
When is buying a house not worth it?
While there are benefits to buying right now, that doesn’t mean now is the exact right time for you to buy a home. Purchasing a house is a major decision and is something you don’t want to take lightly. Let’s look at a few of the factors that can help you determine if you should or shouldn’t buy a home.
Buying a home can cost a pretty penny once you add up all the expenses that come with purchasing and maintaining a home. You’ll need to make sure your budget not only accounts for a down payment and monthly mortgage, but home insurance, maintenance, property taxes, furnishing, utilities, and other necessary expenses. Crunch the numbers to make sure buying your dream home won’t harm your financial health.
Ideally, you’ll spend many happy years in your home, so it’s important to wait until you find the right home in the right location. Consider how close you will be to work, how the local schools rank, and generally what your life would look like in a specific neighborhood before you put an offer on a home. You’ll also want to do some research to see if you’re buying a home in an area that has the potential to increase the value of your home over time. Buying in a less desirable area can help you save on housing costs, but may also limit how much of a return you’ll get when it’s time to sell your home.
Last, but certainly not least, you need to wait until you find the right house for you and your family. If you have a dog, you won’t want to scrimp on a backyard. If your parents live out of town, a guest bedroom is a must. With more and more people working from home these days, a lack of home office space may very well be a deal breaker. To avoid buyer’s remorse, be patient and hold out for the right home.