It used to be the American Dream wasn’t quite complete unless it included a small piece of land with a house they could call home. Part of retirement planning was to pay off that home and live in it in their old age.
Times have changed!
Today’s society is more mobile. We buy and sell houses almost as often as we change cars, seldom staying in one place long enough to pay off the mortgage.
Some homeowners do pay off the mortgage, only to turn around and get a reverse mortgage to make ends meet.
Is it still worthwhile to buy a house?
It all depends on your reasons for buying or renting.
Buying a home for the tax perks
There’s no doubt – buying a home can save you money on your taxes.
You can generally deduct your mortgage interest and real estate taxes.
If you receive a qualified Mortgage Credit Certificate (MCC) from a state or local governmental unit or agency under a qualified credit certificate program, the mortgage interest credit can directly reduce your tax liability.
These perks can make buying a home seem like a no-lose proposition; however, You’ll spend more money on your home than you save in taxes.
Make sure you consider all the pros and cons, not just income tax savings, before you commit to buying and maintaining a home.
Using a mortgage as a forced savings plan
The largest asset many people own when they reach retirement age is their home.
Much of the value of the home is often due to price appreciation, and if they lived in the home for years and resisted the urge to refinance repeatedly, the mortgage may be low or even paid off.
Living in your own home, the money you would otherwise pay in rent goes first to interest, and then to paying the balance.
Just by making your house payment every month for years, you can build up equity without even thinking about it.
On the other hand, the money you spend on rent is gone. If your rent is less than you would pay to buy a house, you can put the difference into savings yourself.
You’ll need considerable self-discipline, however, because putting money away in savings – through good times and bad – isn’t easy.
Betting on real estate
Over long periods of time, real estate makes impressive gains in value. If you bought a house 30 years ago, almost anywhere in the country, that house was likely one of the best investments you could have made.
It’s also a great hedge against inflation, as the dollar value of real estate goes up when the value of each dollar falls.
Real estate can be a lousy short-term investment, however.
If you bought real estate five years ago, especially in an area hard hit by the housing downturn, you’re painfully aware of that. Being forced to sell when the price is down can be financially disastrous.
Are you a handyman?
What can go wrong with a house? Quite a lot, actually. Houses can settle, leak, creak, and be infested with termites. Houses new or old can suddenly need a new heating system, or a new roof.
When you have a landlord, he sends someone over to fix it and pays the bill. If you buy a house, you may find yourself wishing you had a landlord to call.
On the bright side, when it’s your house, you have more control over how well the house is maintained. You can paint whatever color you want (this side of your homeowners association’s good graces), and you don’t have to wait for your landlord to get around to it.
Owner-occupied homes are often in better shape than rentals, because when you’re the one living in a house, you care more than anyone about its condition.
Getting more or less for your money
When home prices were skyrocketing, it was cheaper to rent than to buy a house in most parts of the country. Now, with lower home prices, the opposite may be true. There’s no fixed rule about whether buying or renting is cheaper – it all depends on the market you’re in.
When you compare the cost of renting vs. owning on a monthly basis, don’t forget to make allowance for the additional costs of home ownership, such as maintenance.
On the other hand, if you buy a home with a fixed mortgage, your total interest and principal payment stays the same for the life of the loan. Only your property tax bill can go up over the years.
If you rent a home, your landlord can always raise the rent. He could even sell the property, forcing you to move. Saving a little in rent now may not be such a great idea if rent goes up and you have to pay more later.
Is owning a home part of your retirement plan?