Buying Versus Renting Your Home
If you are currently renting or considering to transition from renting to buying a home, you may be wondering which one is the better option. When it comes to buying a home, there are many variables to consider, including but not limited to your mortgage interest rate, loan amount, loan term, and market considerations, such as the geographical area you intend to live in or future expectation of your property value. The costs and benefits to buying versus renting is not always clear, and for existing renters, renting your home may still offer initial, short-term advantages to buying.
Reasons you may still consider renting over buying your home
- Flexibility: You and your family like to explore new areas before making the commitment to own a home. Renting offers you the option to discover and research neighborhoods and allows you to see what each community has to offer, such as school, parks, shopping, and public services.
- Uncertainty: Your career may be just taking off or you have not yet achieved income stability. If this is the case, having the option to move down to a less expensive rental property may be more preferable for you.
- No maintenance or utility expenses: Your landlord or property manager will be responsible for any repairs or upgrades, and some may even pay certain utilities for you, such as your cable TV or the internet.
Reasons you might want to consider buying over renting
- Establishing and raising your family: You want to raise your family in a stable, comfortable environment, and do not want your children to experience changing schools when you move.
- Freedom: You will own your home and you are the boss. Model, furnish, and upgrade your home to suit your style. Build that garden, add a room, remodel your house the way you like, and put in that Jacuzzi or sauna.
- Build equity: Owning your home gives you the ability to build equity. Why help your landlord by continuing to pay rent? Invest in your own future and your retirement by establishing home ownership.
If you are still not quite convinced that buying may be the overall right choice for you or may even be an unnecessary move, let us think about this a little more. For most of us, it is a fact of life that we will have to pay for a residence, no matter where we decide to live, and that when it comes to weighing out the pros and cons, the advantages to owning your home would generally outweigh renting in the long-run.
The question is simple. Do you still want to be paying rent every month when you are 65 years old? When you have reached an age suitable for retirement, you deserve to live in your own home, free of mortgage payments and without having to expend energy finding and moving from one rental property to another. Renting a home for your entire life means that you may be required to work at the retirement age in order to support rental payments.
Financial Reasons To Owning Your Home
- Build equity: One of the key components in considering homeownership is the opportunity to build equity. While financial situations vary, research has generally shown that if you intend to live in your home for at least 5 years, the cost of purchasing your home would more than likely be offset by your home equity value and/or increased property resale value. This would make even more sense financially as you stay in your home for 10 or more years.
- Mortgage Interest as Tax Deduction: An additional benefit gained from owning your home is the ability to claim your interest payments as a tax deduction. Often times, during the early years of your mortgage, these savings can translate into several thousand dollars in annual tax refunds, depending on the size of your mortgage and your income.
- Source of Future Liquidity through Equity: Making mortgage payments toward your home helps you create a future source of liquidity, when you need it the most. After you have established equity in your home through regular mortgage payments, you have the option to tap into that equity to make major, necessary purchases such as a new car or fund your child's education. What happens if you are still renting and the need for capital comes up? You would be stuck paying both rental and car payments and/or your child's college education at the same time and may be forced to downsize to a less-than-desirable rental property. This access to equity in your home would never be possible if you spend most of your years paying rent to someone else. Additionally, consider future investment opportunities with your income once you have paid off your mortgage. Such future investment opportunities will be lost if you are still renting your home instead of building equity through your mortgage payments.
- Opportunity to Profit through Sale of your Home: Owning your home means you have the ability to sell your home for a profit when opportunity arises. If your home value increases in the future, you have either the option to sell the home and keep the profits, or reinvest the profits and move up to a bigger, more expensive home.
- Avoiding Risk of Future Rent Increases: The United States Census Bureau has shown that average median gross rents have been rising steadily between 1940 and 2000, and this rise almost doubled between 1970 and 2000. On average, people take out home lease terms ranging from 1-2 years, and if we consider how steadily home rent prices have been increasing, you will see the rationale behind buying and owning your home. For example, if you had locked-in your mortgage payments with a 30-year fixed rate mortgage, you would be protected from a rise in the cost of living for the next thirty years, not so if rent continues to increase in the future.
Buying a home is more than simply obtaining the pride of homeownership. It is also about planning for you and your family's financial future. The advantages and disadvantages of owning a home when compared to renting may be different for everyone and each case must be evaluated on its own merits. Before you decide to buy your home, consider what kinds of expenses you will encounter, such as annual property taxes, homeowner's insurance, homeowner association dues, etc., and then compare that to your cash flow to determine your total debt-to-income ratio. Finally, weigh-in your personal goals and objectives. Will you be staying in the home you purchase for several years? If you can meet the mortgage and other property expense payments on a monthly basis and are looking to stay in a place for more than a few years, then owning a home would make sense in the long-term. Renting a place to live has its short-term advantages, and many individuals have their own reasons to rent, either financially or personally. Renting may also serve as the perfect solution until you have saved enough money to put down towards a home purchase. But in the end, perhaps you may wish to look at things in this perspective - both buying and renting have its costs, but the cost of renting is money you cannot ever recover, while the cost of buying can be seen as an investment for the future.