Renting vs Buying a Home
Owning a home has long been an essential element of the “American Dream.” But dreams don’t always match up with reality and homeownership may not be the answer for every American. Renting a home or buying one each comes with advantages
and disadvantages, and the only way to determine which is right for you is to weigh the pros and cons and make the most financially sound decision.
Renting a home offers more flexible living
Renting is often disparaged as “throwing away money” because you are not building equity. The reality is that you need a place to live and renting keeps a roof over your head, so your monthly rent payments are not for nothing. It’s also true that not all of the costs of homeownership go towards building equity, and when you rent, your home-related expenses tend to be more predictable and, in some instances, cheaper. Renter’s insurance, for example, is much less of a financial burden than having to pay property taxes. The rent payments for the term of your lease are also fixed, and you are not responsible for maintenance and repairs.
Renters have the freedom to be more mobile, which is appealing if you don’t plan to stay in one place for very long. You can simply move somewhere else once your lease agreement expires, rather than having to sell your home. Conversely, it may not be up to you whether you stay or go. Your landlord may decide not to offer you the opportunity to renew your lease, or they could raise the rent beyond what you are able to afford.
As a renter you also don’t have to worry about whether your home is decreasing in value.
Buying a home allows you to put down roots
Many people aspire to be homeowners. They want a permanent place to call home, with no landlord to answer to and the freedom to improve or upgrade their home as they see fit. Home ownership is generally considered to be more stable than renting, allowing people to settle into a community and take comfort living in a good school system if children are in their plans.
Much weight is placed on the intangible benefits of home ownership, but there are also tax benefits. Not only are you building equity as a homeowner, but you can deduct mortgage interest and property tax payments from your federal taxable income as long as you itemize your deductions. Making regular mortgage payments will also help you build credit. The trade-off is that home ownership is a substantial financial commitment.
Is it better to buy or rent a home?
Owning is not always better than renting, and renting is not always the simple solution it appears to be. Homeownership requires a greater financial commitment than some are willing or able to make, but it is a long-term investment that offers tax advantages and intangible benefits. Renting may seem like a short-term solution to your housing needs, but it keeps a roof over your head and offers flexibility if you’re not quite ready to put down roots.
There is no wrong answer. It’s only a matter of what is right for you.
If you would like to discuss whether you are ready for homeownership, please contact us and we can help you better understand the financial aspects of owning a home.