Are you on the fence about whether to buy a home or rent?
Home equity is the appraised value of your home minus what you still owe. Simply put, you build equity by making your monthly mortgage payments. Your mortgage payment consists primarily of interest and principle, but may also include other payments such as PMI (private mortgage insurance) and even your home insurance and real estate taxes, depending on the type of mortgage you have. Interest does not go toward paying off your mortgage but principle does. One way to build home equity faster is to make extra payments whenever possible as anything you pay above your interest amount each month goes toward paying off your principle.
Why is home equity important? Your house is considered an asset which means you can use your home equity to finance your child’s college education, remodel your house, buy another home as an investment or even supplement your retirement savings.
Buying Vs Renting
You won’t be able to build equity with your rent payment each month, but you can buy a home to build equity over time and lock in your monthly payment. With a fixed rate mortgage, you can freeze your monthly payment, so it never goes up. Rent will continue to rise over time, which could eventually price you out of your rental home or apartment.
The Zillow Housing Aspirations Report, Q1 2019 shows 52 percent of those surveyed complained that renting prevents them from earning equity and 45 percent said they regret renting instead of buying a home. Over 50 percent regret not being able to customize their home and think that their rent is too high. Other complaints about renting included problems with their property’s pet policies and not liking their neighbors.
There are certainly reasons to rent instead of buy, such as planning to be in the area for only a short time or needing to work on your credit rating in order to qualify for a mortgage. Maintenance costs, having to pay real estate taxes and down payments are also cited as reasons to rent instead of buy.
However, if you plan on living in an area for a long time, raising a family or want your monthly payments to build equity over time, buying a home is a better option than renting. It adds stability to your life as you have more control over your home environment and can customize your home as desired. You’ll also have more flexibility when choosing a neighborhood in the best school district for your children and one that has amenities that you desire, like a pool and walking trails.
Buying New Vs Pre-owned
If you are concerned that buying a home may cost you extra money in maintenance and repair costs, consider buying a new home. Most new homes come with a builder’s warranty to cover any issues that come up within the first year. Many builders offer a “2-10 Home Warranty” that covers systems for two years and structural defects for 10 years.
Additional advantages of buying a new home are newer neighborhood amenities than older neighborhoods and being able to personalize the home with structural options, finishes and fixture upgrades to get the home of your dreams!
You can also save money every month on utility bills because new homes are much more energy efficient than homes five or more years old. The roofing, appliances and systems such as HVAC, plumbing and electrical, will be new as well so there’s less chance of unexpected repairs and maintenance. This makes the economic life of a new home longer than a pre-owned house.
Most builders have preferred lenders that can help you with new home financing and save you money at closing by paying for most, or all, of your closing costs. They can also help you get the lowest interest rate available.
While there may be economic or other factors in your life that make renting a better choice, you’ll need to buy a home to build equity with your monthly housing payment, which can become a major asset over time. Buying also gives you more control over your living environment and creates a more stable environment to raise a family.
Buying a new home is a more secure investment than a pre-owned home because appliances, systems and roofing are new and under warranty, and the additional energy efficiency of the home will save money each month on utility bills.
Some builders only offer a one-year builder’s warranty while others offer a more robust warranty such as the McKee Homes Limited Warranty Program offered by McKee Homes. It’s a good idea to research the different types of home warranties when buying a new home.
McKee Homes has highly skilled team members dedicated to creating the best home building and buying experience possible in Eastern North Carolina. Areas we are building in include: Fayetteville, Pinehurst, Southern Pines and Aberdeen, Raleigh and Wilmington NC. Some of our new home resources we can provide you include: New Home Financing, Buyer Incentives and more.