For many people who have been renting for years, the question becomes, “Is it better to continue renting or would I be better off buying?” Without doubt, both renting and owning a home have advantages and disadvantages. Therefore, it is important for you to understand these differences so you can make the best decision for you and your lifestyle. To make the decision-making process a little easier, we have pulled some important information together for you to consider.
Stable Housing Costs – One of the challenges associated with renting a house is that rent can be unpredictable. Most often, a property owner will raise the rent annually, even if a small amount. Now, when buying a house, if you secure a home with a Fixed Rate Mortgage or FRM, the payments will stay the same throughout the life of the loan. Even if your taxes go up, this is usually so gradual that it has little to no impact.
Tax Savings – As a homeowner, you will be eligible for a number of tax savings since at income tax time, your interest and property tax can be deducted, along with some state income taxes. Initially, the savings would be substantial since the first part of a home loan goes toward taxes and interest.
Equity – One of the biggest advantages in owning a home is that over the years, as the price of the house increases, you earn money, which is called equity. Let us say you purchased your home for $125,000. In seven years of owning the home, the value of the house goes up $20,000. That means when you go to sell, you now have $20,000 more in your pocket, plus the difference between the original purchase price and the payoff loan amount. With renting, all of the money you pay to your landlord is his or hers, providing you with zero benefit.
Gratification – Owning your own home allows you to say the house is yours. That means if you want to paint the bedroom purple and pink, you can. If you want to plant flowers, paint the outside, put in new carpeting, or whatever you want to do, you can because you own the house. Unfortunately, renting a home means not being able to enjoy any of those personal benefits.
Expenses – Now, being a homeowner also means being responsible for your own expenses. In other words, if something breaks that is not covered by your homeowner’s insurance, then you pay whereas when renting, the landlord would be responsible.
Freedom of Mobility – Finally, buying a home means that you are set, at least for awhile. Keep in mind that you could move within a year but you would likely lose money on the home. Although this situation rarely occurs, it is something to consider.