During my student debt repayment saga, completely paying off my student loans was my number one financial goal. I wholeheartedly devoted myself toward my objective of paying off student loans, and I used a number of strategies to save money and earn extra cash so that additional funds could be devoted to this goal. Once I was finally done paying off my student loans, my biggest financial goal was purchasing a home of my own. However, from my own personal experience, buying a home is not worth it in many instances.
Home ownership is usually considered one of the biggest goals of young adulthood. Purchasing a home is typically viewed as a major accomplishment, and I am sure that everyone has seen posts on social media of their friends holding up keys to show that they have reached this milestone. In addition, everyone knows that there are a variety of benefits to home ownership, including tax advantages, building equity, and others.
However, buying a home is not worth it in many circumstances. This is especially true for people like me who did not receive any help from family to purchase their own place. Probably the most difficult part of buying a home is saving enough money for a down payment. As most people likely know, individuals usually must save up ten to twenty percent of the cost of a home for a down payment. If you are not receiving any help from family, it can be very difficult to save up money for a down payment and closing costs. Indeed, most of my friends who have purchased homes had financial help from their family.
As previously mentioned on this website, I did not get any help from my family after I graduated from high school. I therefore had to save the money for a down payment and closing costs all by myself. By using the same tactics I implemented to pay off my student loans early, I was able to save the tens of thousands of dollars needed for a down payment and closing costs in about 18 months. However, I was only able to save up enough money for a ten percent down payment, which is lower than the twenty percent down payment most financial gurus advise borrowers to have.
Since I could not afford to put down twenty percent of my home’s cost in the form of a down payment, I must pay private mortgage insurance, which is a little less than $100 a month. This is not a huge burden, but this is something that should be considered when saving less than twenty percent for a down payment. The bigger impact of a lower down payment is that monthly mortgage payments are significantly higher than if a borrower had savings or help to offer twenty percent or more as a down payment. In my situation, the effect of a smaller down payment means that my current housing costs are more than I paid when I was renting.
Many people might also believe that tax deductions make home ownership worth it even if housing costs are more than they would be if someone rented. However, recent changes in the tax laws means that home-owners can no longer deduct more than $10,000 in state and local taxes. If you live in some parts of the country where property taxes are low, this might not make an impact on your decision to purchase a home. However, if you live in parts of the country with high property taxes (like me), this change means that buying a home is not worth it, since you will be unable to deduct the majority of your property taxes.
Furthermore, home ownership is not cheap, and there are certain costs associated with owning a home that renters do not need to pay. For instance, I pay a significant home-owners’ association fee that I did not fully comprehend when I was shopping for a home. In addition, home-owners’ insurance and flood insurance are significant, and renters do not typically need to pay for these expenses.
Home-owners are also liable for damage to their property and repairs to appliances in ways that renters are not. Indeed, home-owners routinely need to change furnaces, hot-water heaters, refrigerators, and a number of other household items. Take it from me, these expenses can really add up, and sometimes, buying a home is not worth it if you have to invest a lot of money to make repairs to your property.
Some people say that home-ownership is an investment and that building equity in a property is better than “wasting” money on rent. However, home-ownership should not be viewed as an investment, since it costs an insane sum of money to sell a property. I did not fully appreciate this until I bought a home on my own, but broker’s fees, taxes, and other expenses could add up to tens of thousands of dollars in selling costs. This means that a property needs to appreciate in value by a large amount, or you need to spend years building equity, just to break even by selling a property. As a result, buying a home is not worth it if the home does not appreciate in value by the time you want to sell.
I am not sure why home-ownership is seen as such a status symbol or accomplishment for younger adults in our society. Maybe this belief is carried over from generations ago, where home-ownership was cherished as a bulwark of stability and family. Also, there are a lot of people who make money from home-ownership, including real estate brokers, mortgage lenders, home inspectors, and others. These professionals all have an incentive to promote buying and selling homes, and I think some false perceptions exist about home ownership.
All told, many student debt borrowers are probably like myself, and want to pursue home ownership after repaying student loans. However, everyone should not simply think about purchasing a home because it is a worthy objective of adulthood. Rather, each person should carefully evaluate whether home ownership is right for them, since buying a home is not worth it in many situations.