Is buying a home a good idea?
"IF the price of the property (1) increases A LOT, you will just break even, on the huge expenses of home owning. IF the price of the property (2) increases A HUGE AMOUNT, you will make lots of money, due to the leverage. IF the price of the property (3) stays even, you will LOSE a tremendous amount of money. It's much like owning a car - constant expenses. That's all there is to it. It's well worth bearing in mind that property prices for your area / your property need to be constantly increasing for you to merely break even. Note that over long periods of time prices tend to go up (most anywhere - but not everywhere). Many people basically base their thinking on that. It will be OK ""in the long run"". Which is fair enough. I believe one huge factor is that it is enforced saving. That is the number one advantage for most. Note too that in most/all jurisdictions, there are tremendous tax advantages, even if it turns out to be situation (1) (i.e. a waste of time, you only break-even). Note finally that there are, indeed, tremendous social/financial advantages to having the equity: it gets incredibly easy to get other loans (for business or the like) once you own a house; this is undeniably an advantage (perhaps press your husband on that one)." Once you paid it off, you don't pay rent anymore. That is the major advantage. Also, you can do any change you want to it. Many people consider it an investment - if you ever sell it, it could be worth more than what you paid (although this is not for sure) Buying a house may save you money compared with renting, depending on the area and specifics of the transaction (including the purchase price, interest rates, comparable rent, etc.). In addition, buying a house may provide you with intangibles that fit your lifestyle goals (permanence in a community, ability to renovate, pride of ownership, etc.). These factors have been discussed in other answers here and in other questions. However there is one other way I think potential home buyers should consider the financial impact of home ownership: Buying a house provides you with a natural 'hedge' against possible future changes in your cost of living. Assume the following: If these two items are true, then buying a home allows you to guarantee today that your monthly living expenses will be mostly* fixed, as long as you live in that community. In 2 years, if there is an explosion of new residents in your community and housing costs skyrocket - doesn't affect you, your mortgage payment [or if you paid cash, the lack of mortgage payment] is fixed. In 3 years, if there are 20 new apartment buildings built beside you and housing costs plummet - doesn't affect you, your mortgage payment is fixed. If you know that you want to live in a particular place 20 years from now, then buying a house in that area today may be a way of ensuring that you can afford to live there in the future. *Remember that while your mortgage payment will be fixed, other costs of home ownership will be variable. See below. You may or may not save money compared with rent over the period you live in your house, but by putting your money into a house, you have protected yourself against catastrophic rent increases. What is the cost of hedging yourself against this risk? (A) The known costs of ownership [closing costs on purchase, mortgage interest, property tax, condo fees, home insurance, etc.]; (B) The unknown costs of ownership [annual and periodic maintenance, closing costs on a future sale, etc.]; (C) The potential earnings lost on your down payment / mortgage principal payments [whether it is low-risk interest or higher risk equity]; (D) You may have reduced savings for a long period of time which would limit your ability to cover emergencies (such as medical costs, unexpected unemployment, etc.) (E) You may have a reduced ability to look for a better job based on being locked into a particular location (though I have assumed above that you want to live in a particular community for an extended period of time, that desire may change); and (F) You can't reap the benefits of a rental market that decreases in real dollars, if that happens in your market over time. In short, purchasing a home should be a lifestyle-motivated decision. It financially reduces some the fluctuation in your long-term living costs, with the trade-off of committed principal dollars and additional ownership risks including limited mobility. "The New York Times offer a remarkably detailed Buy vs Rent calculator.  You enter - From all of this, it advises the break-even rent, when monetarily, it's equal.  I'd suggest you keep a few things in mind when using such a tool. Logic, common sense, and a Nobel prize winner named Robert Shiller all indicate that housing will follow inflation over the long term. Short term, even 20 years, the graphs will hint at something else, but the real long term, the cost of housing can't exceed inflation.  The other major point I'd add is that I see you wrote ""We rent a nice house."" Most often, people are looking to buy what they feel they can't easily rent. Whether it's the yard, room number or sizes, etc. This also leads to the purchase of too big a house. You can find that you can afford the extra bedroom, family room in addition to living room, etc, and then buy a house 50% bigger than what you need or planned on. In my opinion, getting the smallest house you can imagine living in, no bigger than what you live in now, and plan to get on a faster than 30 year repayment. Even with transaction costs, in 10 years, you'll have saved enough to make the bump up to a larger house if you wish." "A home actually IS a terrible investment. It has all the traits of something you would NEVER want to plunge your hard-earned money into. The only way that buying a house makes good money sense is if you pay cash for it and get a really good deal. It should also be a house you can see yourself keeping for decades or until you're older and want something easier to take care of. Of course, nothing can replace ""sense of ownership"" or ""sense of pride"" other than owning a house. And your local realtor is banking (really, laughing all the way to the bank) on your emotions overcoming your smart money savvy. This post really goes to work listing all the reasons why a house is a horrible investment. Should be required reading for everyone about to buy a house. Why your house is a terrible investment - jlcollinsnh.com TLDR; - You must decide what is more important, the money or the feelings. But you can't have both. If you read the article linked and still want to buy a house...then you probably should." "It certainly seems like you are focusing on the emotional factors.  That's your blind spot, and it's the surest path to a situation where your husband gets to say ""I told you so"".  I recommend you steer straight into that blind spot, and focus your studies on the business aspects of buying and owning homes.   You should be able to do spreadsheets 6 ways from Sunday, be able to recite every tax deduction you'll get as a homeowner, know the resale impacts of 1 bathroom vs 2, tell a dirty house from a broken house, etc.  Everybody's got their favorites, mine are a bit dated but I like Robert Irwin and Robert Allen's books.  For instance: a philosophy of Allen's that I really like: never sell.  This avoids several problems, like the considerable costs of money, time and nerves of actually selling a house, stress about house prices, mistaking your house's equity for an ATM machine, and byzantine rules for capital gains tax mainly if you rent out the house, which vary dramatically by nation.  In fact the whole area of taxes needs careful study.  There's another side to the business of home ownership, and that's renting to others.  There's a whole set of economics there - and that is a factor in what you buy.  Now AirBNB adds a new wrinkle because there's some real money there.  Come to understand that market well enough to gauge whether a duplex or triplex will be a money maker.  Many regular folk like you have retired early and live off the rental income from their properties.  JoeTaxpayer has an interesting way of looking at the finances of housing: if a house doesn't make sense as a a rental unit, maybe it doesn't make sense as a live-in either.   So learn how to identify those fundamentals - the numbers.  And get in the habit of evaluating houses.  Work it regularly until it's second nature.  Then, yes, you'll see houses you fall in love with, partly because the numbers work.  It also helps to be handy.  It really, really changes the economics if you can do your own quality work, because you don't need to spend any money on labor to convert a dirty house into a clean house.  And lots of people do, and there's a whole SE just for that.  There is a huge difference between going down to the local building supply and getting the water pipe you need, vs. having to call a plumber.  And please deal with local businesses, please don't go to the Big Box stores, their service is abominable, they will cheerfully sell you a gadget salad of junk that doesn't work together, and I can't imagine a colder and less inviting scene to come up as a handy person."
Yes. Borrowing more against your home means you will pay more interest for your home. Specifically:  Does this increase the amount of interest on my home loan by $144.56 per month to start with? Yes, that is exactly what it means. As to whether or not that is a good use of the money, I can't say. You're making various assumptions here... They could be accurate or, if this is your first rental home, they could be wildly optimistic (100% occupancy rate? that won't last). Additionally, houses are physical goods which depreciate. Put another way, they fall apart, and you (as the owner) are responsible for fixing it. You have the basic idea right, I just think you should plan for a worst-case scenario, and it looks like you're planning for the best. Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think   it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax. "One thing that's often overlooked is that cash reserves are also a long-term investment.  Anything can be a long-term investment if it's expected to appreciate or pay interest/dividends.  So it's not either/or.  Stocks are but one way to do long-term investments. Having said that, taking on less debt for a consumer good is never a bad idea.  Your primary residence is a consumer good, regardless of those who would say that ""your home is your biggest investment.""  So, there's my vote for a larger down-payment. Beyond that, a couple of outside-the-box comments:" If you itemize your deductions then the interest that you pay on your primary residence is tax deductible. Also realestate tax is also deductible. Both go on Schedule A. The car payment is not tax deductible.  You will want to be careful about claiming business deduction for home  or car. The IRS has very strict rules and if you have any personal use you can disqualify the deduction. For the car you often need to use the mileage reimbursement rates. If you use the car exclusively for work, then a lease may make more sense as you can expense the lease payment whereas with the car you need to follow the depreciation schedule.  If you are looking to claim business expense of car or home, it would be a very good idea to get professional tax advice to ensure that you do not run afoul of the IRS. A Simple Rule to discern between good and bad debt: Does this mean you should never buy a house or car? Of course not.  But if you accrue bad debt, make sure that you can handle it and understand the costs and repercussions. "One reason I have heard (beside to keep you paying rent) is the cost of maintenance and improvements.  If you hire someone else to do all the work for you, then it may very well be the case, though it is not as bad as a car. Many factors come into play:   If you are lucky, you may end up with a lot that is worth more than the house on it in a few decades' time. Personally, I feel that renting is sometimes better than owning depending on the local market.  That said, when you own a home, it is yours.  You do have to weigh in such factors as being tied down to a certain location to some extent.  However, only the police can barge in -- under certain circumstances -- where as a landlord can come in whenever they feel like, given proper notice or an ""emergency.""  Not to mention that if someone slams a door so hard that it reverberates through the entire place, you can actually deal with it. The point of this last bit is the question of home ownership vs renting is rather subjective.  Objectively, the costs associated with home ownership are the drags that may make it a bad investment.  However, it is not like car ownership, which is quite honestly rarely an invesment." "A primary residence can be an admirable investment/retirement vehicle for a number of reasons. The tax savings on the mortgage are negligible compared to these.  A $200,000 mortgage might result in a $2000 annual savings on your taxes -- but a $350,000 house might easily appreciate $20,000 (tax free!) in a good year. Some reasons to not buy a larger house. Getting into or out of a house is tremendously expensive and inconvenient.  It can make some life-changes (including retirement) more difficult. There is no way to ""diversify"" a primary residence.  You have one investment and you are a hostage to its fortunes.  The shopping center down the street goes defunct and its ruins becomes a magnet for criminals and derelicts?  Your next-door neighbor is a lunatic or a pyromaniac?  A big hurricane hits your county?  Ha-ha, now you're screwed.  As they say in the Army, BOHICA: bend over, here it comes again. Even if nothing bad happens, you are paying to ""enjoy"" a bigger house whether you enjoy it or not.  Eating spaghetti from paper plates, sitting on the floor of your enormous, empty dining room, may be romantic when you're 27.  When you're 57, it may be considerably less fun. Speaking for myself, both my salary and my investment income have varied wildly, and often discouragingly, over my life, but my habit of buying and renovating dilapidated homes in chic neighborhoods has brought me six figures a year, year after year after year. tl;dr the mortgage-interest deduction is the smallest of many reasons to invest in residential real-estate, but there are good reasons not to." "In some cases perhaps, but in others not.  Several homes near me were sold over and over again during the bubble years (at incrementally higher and higher sale prices) -- the last owners in nearly all cases defaulted and the banks (after dragging their feet for a couple of years) finally foreclosed and sold the homes off cheap.  In all but one of the ""distressed sale"" cases, the people buying the houses now ARE in fact moving into them as their primary home (the exception being a current resident who bought the adjacent home with the intentions of fixing it up &amp; renting it out, I believe at least initially to a family member); but in ALL cases (in no small part due to the fact that they were able to purchase the properties cheap) these new owners are investing substantial money into fixing them up (new roof &amp; gutters, new windows &amp; doors, paint and/or siding, often all new carpeting, some landscaping, etc).  Also, from the perspective of our homeowners association, all of these new people think our annual HOA fees are a ""bargain"", whereas the previous bubble-era ""homeowners"" (if, having invested almost nothing, they could truly be called that) did nothing but whine and complain (well, and once they began defaulting on their mortgages, they also defaulted on their HOA fees).  So it's a win-win for our neighborhood. We're getting good, solid residents who are planning on taking care of their properties... the exact opposite of what you are claiming.   (The ""house-flippers"" you decry were the ones buying with ""no money down"" during the bubble era -- and they nearly killed the neighborhood.)"