Home ownership was once considered a staple of the ‘American Dream’ and a sure sign of financial stability in the United States.
Despite strong evidence supporting the financial benefits of homeownership in generating wealth, homeownership might not always be the best decision.
First, buying a home requires a large upfront payment which can significantly reduce liquid assets for a time period. Second, all mortgages are not created equal.
Make sure you understand the fees, rates, and payment schedule of the mortgage before agreeing to take on that burden.
Another important issue is rental costs compared to home prices by geographic location. In some areas in the U.S. renting might be a better deal than homeownership while in other areas homeownership is a much better financial deal.
Renting provides increased flexibility, a lower liquidity hit, and lower upfront costs, while buying a home can increase housing security, provide some inflation protected asset, tax benefits, and research continues to show that those who buy a home are more likely to increase their wealth.
Purchasing a home can also work as a forced savings vehicle, which is very beneficial to the many Americans that struggle to regularly save money.
While attitudes on homeownership are likely to continue to morph over time, each individual or couple should examine their own unique circumstances before purchasing or renting a home.