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Lesson 1.1

Benefits and Challenges of Homeownership

 
Chris Birk | Author of "The Book on VA Loans"

Getting Ready

Veterans and the military community share in a rich history of homeownership.

Generation after generation has embraced a deep-rooted desire to secure a piece of the American Dream they fought to protect.

Owning a home can provide an unbeatable sense of security, comfort and financial stability. But no one can tell you that you’re ready to start this journey.

This is one of the biggest financial transactions you’ll ever make. The right time to begin is when you’re financially and emotionally prepared.

Part of the preparation is recognizing that owning a home can come with both benefits and challenges.

Let’s take a closer look at some of each.

Benefits of Homeownership

Here’s a look at five big benefits of homeownership:

  • You have payment stability: Homeowners no longer have to worry about a landlord hiking the rent next year or the year after. With a fixed-rate mortgage, your principal and interest payment won’t change during the term of your loan. For many buyers, that’s 30 years of stability.
  • Your property can build equity: You own a little more of your home with every mortgage payment you make. That ownership stake is known as equity. Over time, you can look to leverage that equity, either by borrowing against it or by hopefully realizing a solid return when it comes time to sell. Homeownership can be a great financial investment depending on your specific goals and situation.
  • You’re free to change décor and landscaping: Is your daughter in desperate need of bubblegum-pink walls? Want to start a backyard garden? Homeowners have the freedom to alter a space without a landlord’s approval. That personal touch can help make a house a home.
  • Your credit can improve with homeownership: Owning a home can also unlock future credit opportunities. Banks and credit card issuers can favor those who own a home, which is why it’s common to see “Do you rent or own a home?” on credit and loan applications. Securing a home loan is no small feat. Making your payments on time can help boost your credit score and show other creditors out there that you’re a good bet.
  • You can accrue tax advantages through homeownership: You may be able to receive a tax deduction for your property taxes, mortgage insurance expenses and other costs associated with homeownership. It’s always best to consult with a tax professional.

Start Your Home Loan Journey

Challenges of Homeownership

The VA loan program does a tremendous job helping ensure veterans can truly afford the homes they purchase. In fact, this no-down payment program has an exceptionally low foreclosure rate.

Still, there are no guarantees. Job loss, family changes and scores of other things can affect your financial health. The mortgage still needs to be paid.

Take a careful look at some of the potential challenges of buying a home before jumping into the process:

  • New monthly expenses: Your monthly mortgage payment will typically cover your principal and interest on the loan, along with a portion of your annual property tax and homeowners insurance bills. You’ll often see it expressed as PITI (principal, interest, taxes, insurance). The principal and interest portions won’t change on a fixed-rate mortgage. But property taxes and homeowners insurance premiums can change annually. In addition, you might encounter an array of new expenses you didn’t have as a renter, from water and trash bills to unexpected repairs.
  • You are responsible for maintenance: As a homeowner, you won’t have to haggle with a landlord over repairs or improvements. But that also means you’re responsible for paying for them. If the washing machine breaks or the septic system backs up, you’re on the hook for repairs. There’s also regular maintenance and upkeep to prevent those unexpected problems. Homeowners often budget about 1 percent of their home’s value each year for maintenance and repair costs. That’s $2,000 on a $200,000 home.
  • Relocation may be more difficult as a homeowner: Renters can wait for a lease to end, and active duty military members can actually break them without penalty in certain situations. But veterans and military homeowners on the move aren’t allowed to walk away from a mortgage, at least without facing some steep credit and financial consequences. Most homeowners must sell or rent out their homes. You should also keep in mind that there are costs associated with selling your home.
  • Default does happen: No one expects to lose a job, go through a divorce or face a medical problem. For whatever the reason, failing to stay current on your mortgage payments can take a significant toll on your credit. Late payments, loan modifications and foreclosure can crush your financial profile.

When it comes to buying a home, just be honest with yourself about the potential risks given your own personal and financial circumstances. If the future is a bit cloudy, now may not be the right time to pursue a home purchase.

The goal is sustainable, responsible homeownership. Few things are more rewarding.