Becoming a homeowner can be a personal achievement and a savvy, long-term investment. However, homeownership comes with costs, risks, and potential downsides. Here’s a closer look at the advantages and disadvantages of buying and owning a home.
Key Takeaways:
- Buying a home has many advantages, including building equity — and wealth — with each mortgage payment.
- Owning a home also offers tax advantages, financial stability, and the freedom to customize it how you like.
- Homeownership downsides include high upfront costs and the responsibility for all maintenance and repairs.
The Pros of Buying a House
What are the benefits of buying a house? For starters, it’s a huge accomplishment to buy a home. It can take a long time to save enough for a down payment and closing costs. If you can clear those hurdles, you’ll enjoy the pros of owning a house.
Build equity
One of the biggest perks of buying a home is building equity. When you rent, you pay your landlord or property manager in return for the ability to occupy the space for that month, and that’s it.
When you own a home, each mortgage payment reduces your principal and builds equity, which is the difference between how much your property is worth and how much you owe on it. As you reduce your principal, your home equity grows. You also build equity when your home appreciates, which most homes do over the long term.
If you decide to sell your home, your equity is how much you keep from the sale after paying off your mortgage balance. You also can borrow your equity with a home equity loan, home equity line of credit, or cash-out refinance.
Tax benefits
Owning a home can also help you save money at tax time. If you itemize your tax deductions, you can deduct what you’ve paid in property taxes and mortgage interest. You also can catch tax breaks on discount points or specific home improvements. For example, if you have a home that’s already energy-efficient, you might qualify for the residential energy-efficient property credit. If you renovate your home to make it more energy-efficient, you may be eligible for the energy-efficient home improvement credit.
Good investment
Buying a home can be a rewarding investment because prices tend to increase over time — as long as you maintain the property and keep it in good condition. If your home’s value appreciates, that gives you equity to borrow or collect if you decide to sell.
While property values can go up and down in the short term, the national average for home appreciation is 3% per year. For context, here’s a look at the median sales price for a home over the last several decades:
- January 1994: $126,000
- January 2004: $209,500
- January 2014: $269,800
- January 2024: $414,900
Stable housing costs
If you buy a home with a fixed-rate mortgage, your monthly bill for principal and interest will be stable and predictable from the first payment to the last. While your property taxes and homeowners insurance premiums may increase, knowing your home loan costs won’t change lets you reliably budget for the future. Renters, however, can expect rent increases — sometimes every year.
You can do whatever you want with the home
When you rent, you have to follow the rules and terms in your rental agreement. Your landlord or property manager may prohibit you from painting the walls or replacing the fixtures. But when you own a home, you can paint it any color you like, perform renovations, and build an addition.
Improve your credit
Owning a home and paying your mortgage on time each month can increase your credit score. Your payment history has the biggest impact on your FICO score, so making timely payments helps boost your credit. A higher credit score can help you refinance to a lower interest rate and reduce your monthly payment. If you want to move, a higher credit score can get you a lower interest rate on a new mortgage.
The Cons of Buying a House
Buying a house also comes with trade-offs. Here are some downsides to homeownership.
High upfront costs
One of the biggest barriers to homeownership is the high upfront cost. It can take a long time to save enough for a down payment. To get a conforming conventional loan, you’ll need a down payment that’s at least 3% of the purchase price. If you’re buying a $400,000 home, that means you’ll need at least $12,000. You’ll also need to pay closing costs, which usually range from 2% to 5% of the purchase price. To buy that same $400,000 home, you need between $8,000 and $20,000 to pay closing costs — on top of the $12,000 minimum down payment.
By comparison, renting a home has low upfront costs. Renters typically only need to pay an application fee, a security deposit, and maybe a move-in fee.
Maintenance and repairs
When you rent a home and something breaks, you call your landlord, and it’s their responsibility to fix it or pay for repairs. When you own a home and something breaks, you need to figure out how to fix it — and you have to pay for it. Routine maintenance is one of the ongoing costs of homeownership, and emergency repairs can be expensive. Common suggestions for saving money to prepare for these expenses include:
- Setting aside 1% of the purchase price each year.
- Saving $1 for each square foot annually.
- Setting aside 10% of your mortgage payment each month.
Property taxes, HOA fees, and insurance
Owning a property comes with some unavoidable costs. Mortgage lenders require borrowers to buy homeowners insurance, which protects your home and belongings in the case of a destructive event. You also must pay property taxes, which go to local governments for public services, infrastructure, and schools. And if you buy a home that belongs to a homeowners association, you’ll also have to pay HOA fees. These costs vary widely and can’t be avoided, so do your homework to figure out how much they will carve out of your budget and be prepared to pay them.
More difficult to move
If you rent a home, it’s easy to move out. If your lease is up, you just pack up and move on. If not, you can work something out with your landlord or pay any penalties in your rental agreement. If you own, it’s a lot more complicated. Selling your home takes time. You need to find a real estate agent, get the home ready and listed, find a buyer, and close the deal. Owning a home can slow things down if you need to move quickly to start a job or settle in before the start of a school year.
Risk of foreclosure
When you take out a mortgage, you’re committing to 15 or 30 years of monthly payments, and failing to make payments comes with severe consequences. If you default on your loan, your lender could foreclose on your mortgage and evict you. In addition to needing a new place to live, your damaged credit will take years to recover.
The Pros and Cons of Buying a House
| Advantages | Disadvantages |
| You build equity. | Higher upfront costs. |
| Income tax benefits. | Responsible for all maintenance and repairs. |
| Houses typically increase in value over time. | You have to pay property taxes. |
| More stable housing costs. | You may have to pay HOA fees. |
| Freedom to do whatever you wish with the home. | It’s more difficult to move. |
| Helps to improve your credit. | Risk of foreclosure. |
FAQ: Pros and Cons of Buying a House
Here are answers to some frequently asked questions about the pros and cons of buying a home.
The answer comes down to your priorities, financial goals, and current market conditions. Buying a home lets you build equity and have total control over your home, though there are higher upfront costs. Renting a home makes sense if you want the flexibility to move and less responsibility for repairs and maintenance.
You may not build equity when you rent a home, but renting does have perks — like flexibility and lower upfront and recurring costs — that may better suit your lifestyle and priorities.
Housing prices rise or fall based on market conditions. Historically, home prices have appreciated significantly over the last several decades, but there are instances where home prices fall in the short term or in specific areas.
The Bottom Line on the Pros and Cons of Buying a House
Buying a home has many benefits but is also a major commitment. Unlike renting, homeownership builds equity and wealth. You also are free to alter or customize a home you own. However, buying a home involves high upfront costs, and owning one means you’re responsible for property taxes, homeowners insurance, maintenance, and repairs. If you’re financially and personally ready to buy a house, it can be a significant achievement. If you aren’t quite ready for that responsibility, can’t afford it yet, or prefer the flexibility of renting, then you might postpone your homebuying plans.
