Is Buying a House a Good Investment?
Buying a house offers both financial and emotional benefits like the potential to build equity, more control over your living space and peace of mind from avoiding difficult landlords and rising rent prices. But is buying a house a good investment for you?
The answer depends on various factors, including your overall financial picture and goals. Here’s how to determine if buying a house is right for your situation.
5 Reasons why buying a house is a good investment
1. Your house may increase in value
Homes are generally thought of as investments due to their ability to appreciate over time. Like many other investments, home prices experience ups and downs. While home prices fluctuate depending on various factors, including local housing markets and mortgage interest rates, prices tend to increase with time — U.S. single-family home prices increased 5.8% year over year between January 2023 and January 2024, according to data from CoreLogic.
2. You can build equity
You may have heard people refer to renting as “throwing money away,” since your monthly rent payments are paid to your landlord. When you buy a house, your monthly mortgage payments go toward building equity in your home, allowing you to build wealth over time.
Home equity is the difference between the value of your home and what you owe on your mortgage. The gap widens as you make payments and as your home appreciates. Many homeowners take advantage of home equity loans that can help them start a business, invest in stocks or rental properties or make improvements to boost their home’s value. Keep in mind, however, that you’ll pay closing costs and interest on these loans, so that money isn’t free.
Use our mortgage calculator to estimate how much your monthly payments could be.
3. You own your home
Owning your home offers tangible and intangible benefits. Tangible benefits include building equity, tax breaks and potential rent savings, while intangible benefits include a sense of stability, freedom and achievement.
Many people choose buying a home over renting for the stability it provides for themselves and their families. As an added bonus: You can paint the walls any color you want without needing your landlord’s approval. However, if you are in an HOA community, you’ll want to check the rules before making any major changes or upgrades.
4. You may qualify for homeowner tax breaks
Tax breaks for homeowners can help keep more money in your pocket that you can use for lifestyle expenses or investments. Here are some of the tax deductions homeowners may qualify for:
→ Mortgage interest deduction. You can deduct the mortgage interest you pay on your primary residence, and a secondary residence if you have one.
→ Home equity loan interest. The interest you pay on home equity loans and HELOCs can be deducted, as long as it’s spent on home improvements.
→ Property tax deduction. You can receive a tax break for paying property taxes up to $10,000 (or $5,000 if married filing separately).
→ Renovations for medical purposes. You can receive a tax deduction for building ramps and railings and making other medically necessary home improvements.
Keep in mind, only homeowners who itemize their taxes can claim these deductions. In addition, you typically can’t deduct homeowners association dues, homeowners insurance premiums and home improvements that aren’t made specifically for medical reasons.
5. You can comfortably age and update your house to fit your needs
With the rising costs of nursing home care, owning a home where you can age in place can be beneficial. Homeowners 62 years of age or older may qualify for a reverse mortgage, which allows you to tap into your home equity without taking on an additional monthly payment. You can use the cash you receive to make updates to the home that may make aging in place easier, such as making it wheelchair accessible.
3 Reasons why buying a house is not a good investment
1. Your home value might drop
Like any investment, your home isn’t guaranteed to increase in value. Many homeowners learned this lesson the hard way during the 2008 housing crisis. Home values plummeted — with many people owing more on their mortgage loans than their homes were worth.
Read our study about states where home values grew relative to income.
2. You must pay ongoing expenses
Your down payment and closing costs aren’t the only expenses involved with buying a home. Even when you no longer have a mortgage payment, you’ll still have home-related expenses that may increase over time. These expenses include:
- Maintenance and repair costs
- Property taxes
- Homeowners insurance
- Utilities
See current home insurance quotes by company to estimate how much you could pay.
3. You can’t turn your home into cash quickly
Homes are generally considered illiquid investments, since it’s not usually an easy or quick process to convert them to cash. You’ll have to find a real estate agent (unless you have the time and ability to sell your home without one), put your home on the market and then review and negotiate offers. The average time it takes to complete the home closing process is 43 days for purchases and refinancing, according to Ice Mortgage Technology.
What are the costs of buying a house?
If you’re thinking about buying a house and are trying to determine if it’s worth it, you may be curious about the costs involved. Some common expenses you’ll see during the home buying process include:
→ Inspection and appraisal. When buying a home, you’ll need an inspection to check if there are any problems with the house. Your mortgage lender will likely require an appraisal to determine the value of the home.
→ Down payment. A down payment is an amount of money you pay upfront when you close on a house. For first-time homebuyers, the down payment is typically 6% to 7% of the home’s purchase price, according to National Association of Realtors data. But different types of mortgages have different down payment requirements.
→ Lender fees. You’ll need to pay several closing cost fees to your mortgage lender, including loan origination, application and credit check fees.
→ Earnest deposit. An earnest deposit — also called a “good faith deposit” — is an amount of money (typically around 3% of the purchase price) that you pay before closing to show you’re a serious buyer.
→ Real estate attorney. It’s usually a good idea to hire a real estate lawyer to represent your interests in a real estate transaction. Real estate lawyers usually bill hourly, with rates ranging from $150 to $500 or more.
Read more about our picks for the best mortgage lenders.Is buying a house worth it?
If you’re financially ready and buying a house fits your lifestyle goals and needs, it can be worth it. Apart from the financial benefit of building equity, many people value homeownership for the stability it provides, as well as the freedom to customize the home to their preferences.
Further, homeowners don’t have to worry about annual rent renewals and rent increases — and when you pay off your house, your expenses will go down, as you’ll no longer have a mortgage payment.
Learn more about the steps to apply for a home loan.
Ready to compare competitive rates from top lenders? Get Free Personalized Offers TodayFrequently asked questions
Though the housing market has seen better days — current 30-year fixed mortgage rates are averaging 7.52% — it may still be a good time to buy a home. Whether it’s a good time to buy will depend on your specific situation and financial readiness. Consider your lifestyle needs, job stability, credit score and how much you have saved for a down payment.
Some of the benefits of buying a home versus renting is that buying provides more stability and allows you to build equity. With renting, there’s less price stability, as your monthly rent payment is tied to the market and the whims of your landlord. However, homeownership isn’t a one-size-fits-all solution, and you should consider your personal goals and financial situation before making a decision.
There is no “best age” for buying a house. Buying a home at a young age can help you pay it off sooner, so you won’t have a mortgage when you retire. However, if you’re in your 20s or 30s and don’t own a home yet, don’t worry — you still have plenty of time. The bottom line is that the best time to buy a house is when it aligns with your needs and you’re financially ready.
Generally speaking, owning your house for at least five years helps you get the most bang for your buck, since you’ll have more time to build equity. If you need to sell your house sooner, understand how it’ll impact you financially. For example, selling while underwater on your mortgage may result in out-of-pocket costs.
In addition, if you haven’t lived in your home as a primary residence for at least two of the past five years, you may be subject to capital gains taxes. You can avoid up to $250,000 in capital gains taxes otherwise.