So many buyer myths keep worthy potential buyers from pulling the trigger. Spelled out here are many of the most common ones, with holes shot straight through them.
There are no benefits to owning
When the discussion of buying vs. renting comes up, this is most often stated by someone who’s never owned a home. Here are 11 substantial benefits of owning a home:
- You can build equity
- No other investment lets you live inside of it
- A sense of permanence — you get to make all the choices and create the home you love
- You can increase your net worth
- Homeownership is a form of forced savings
- You can potentially borrow against the equity you have in your home
- You get the benefit of improvements that you make
- You can potentially rent out the home and get someone else to pay your mortgage
- Homeownership allows you to lock in the largest monthly cost (principal+interest) associated with owning a home
- When selling, any increase in value is capital gains tax-free ($250k/person, $500k/married couple)
- Most owners cite homeownership as improving their lifestyles and increasing their number of hobbies
Renting avoids the cost of taxes & repairs
While it can be argued that renting avoids repair costs (which it does), that argument also assumes that a landlord isn’t setting aside part of the rental income towards future repairs or tax increases. Most that I know plan ahead for such costs. Bear in mind that landlords also often enjoy a baked-in profit margin even after monthly costs and the cushion for future expenses!
Renting is cheaper than owning
The shorter the expected length of ownership would be (i.e. less than a few years), the more likely it’s true that renting would be cheaper. If you’re not planning to move within that timeframe, then consider these points:
- You get tax write-offs for many of your expenses (interest on your loan, property taxes) which should be factored into your overall monthly costs
- Costs to rent often rise at a higher rate than homeowner costs
- While an upfront outlay of money, the down payment is not a hard cost but rather part of the equity in the home
This is one of the most often heard buyer myths. And it deserves to be debunked.
A 740 or higher credit score is required
In the most recent report, 49% of buyers had credit scores between 600 – 749. This is another one of the buyer myths that continue to live on despite the many options available and is likely keeping many ready, willing and able buyers on the sidelines unnecessarily.
20% down payment or more is needed
This myth is as old as dirt and worth about as much. While a high credit score and 20%+ down payment will generally allow for the lowest monthly costs, there are a wide variety of loans offered below this threshold:
- 0% down — VA loans — available to servicemembers and veterans
- 3% down — Conventional 97 loans — does not require front-end PMI, the down payment can be gifted, and those with 620+ credit may qualify
- 3.5% down — FHA loans — a great option for many buyers, only 580+ credit score needed, does require PMI and an FHA appraisal
- 5% or more — there are numerous options in these ranges, depending on how much you have to put down and what your monthly expense, savings, and other long-term goals are
“I’ll rent because my friends are renting”
The allure of doing what others are doing is very strong. As is doing what you’ve always done (rent, i.e. the devil you know) vs. doing something new and different (buy, the devil you don’t know) — especially when it involves your money. But following the herd can be costly. Studies repeatedly show that the net worth of homeowners is exponentially higher than that of renters … like 44x higher!
The dream of owning a home is dying off
Most Americans associate homeownership with a sense of personal pride — getting their piece of the “American Dream”. Study after study continues to show this to be the case, including one that shows that Millennials prioritize homeownership over getting married or having kids!
Final word on buyer myths
If you don’t plan to own more than a few years, need flexibility in the near term, or you prefer a nomadic existence to one with more permanence, perhaps renting is the better choice. If you believe that owning a home leads to a happier and wealthier life (as evidenced by the information in this article), then what are you waiting for?!