The answer, of course, depends on the type of homeownership
you're talking about, but as a baseline, let's just say that it's always better
to have an asset than not to have one.
Let's start with homeownership that way most people envision it and then
go from there. When you purchase a home, you usually borrow money from some
lender to purchase a parcel of land and the residential building that stands
alone on the land. To ensure you repay the loan, the lender takes a security
interest in the real estate that allows it to repossess your home and sell it
to recover the costs of the loan to you in the event you fail to repay it. Sometimes
the residence already exists; sometimes it gets built for you.
You're probably already familiar with the
advantages of basic
homeownership: homeownership is a forced savings plan since mortgage payments
accrue to the homeowner as equity - free and clear ownership of an asset; homeownership
is a good
hedge against inflation since prices and incomes
rise over time but mortgage payments stay the same; property taxes, mortgage
interest, and some origination fees can be
deducted from federal
income taxes; and homeownership affords more privacy and control over your environment.
On the other hand, homeownership is the basis of the American Dream and a cornerstone
of the American economy, so people tend not to talk too much about its disadvantages.
Still there are some: homeowners are completely responsible for the upkeep and
maintenance of their property; real estate is an illiquid and usually slowly
appreciating asset - it can take 20 to 30 years to get a couple thousand dollars
out of the property; if property is foreclosed on, the owners can lose their
equity; up-front costs of homeownership can great; and homeownership limits
mobility.
If you are thinking about homeownership and are put off by some of the disadvantages
of traditional homeownership, consider some alternatives. For instance, if maintenance
and upkeep is something you don't want to deal with, then look into a co-op
or condominium
unit where the homeowner's living space is accompanied by a very small area
of land, if any at all. A condo or a co-op is also a good idea for a person
who is still mobile or semi-transient. It's much easier to hold onto and rent
a condo or co-op unit than it is an entire house. As well, renting the unit
won't damage the equity value as much as renting a house would.
Homeownership is a big investment of time, energy and money, and it is good
to investigate both the advantages and disadvantages before jumping in. Still,
if you can afford it, homeownership - whether it's a traditional
single family home or a condominium or a manufactured home - is usually
more than worth the trouble.
Answer Submitted on Wed, Dec 27 2006
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