Coffee or tea? Baroque or renaissance? Android or iOS? These eternal questions never go out of style. Neither does the “rent vs buy” dilemma.
Almost 65% of Americans own a home. However, the rest wonder if the dream property is out of their reach. Let’s look into key factors, which could affect your decision.
Evaluate Your Current Life Situation
The decision to rent vs buy starts with where you stand in life and what your goals are. Consider if you are:
- Going through serious life changes, such as divorce or downsizing, it’s better to turn to rent.
- Getting married or having a baby, you may want to buy a home with the growing family’s needs in mind.
- Have big traveling plans, put off buying in favor of rent.
- Used to a certain lifestyle and buying a house would limit your options substantially, consider renting.
- Chosen a neighborhood for your kids to go to school in, consider buying since you’ll need stability for the next decade and a half.
- Have a long-term employment commitment, buying a home is more preferable than renting.
You can also ask yourself the following questions:
- Am I happy with the city I live in?
- Planning to get a new job in the near future?
- Ready to take on the responsibility of homeownership?
The bottom line is that you should be choosing (rent vs buy) what’s right for you.
Determine Your Financial Situation
No matter how ready you are to buy a home, you need to figure out your financial situation. While renting requires regular monthly payments, owning a home comes with:
- Mortgage payments
- Property taxes
To find out if you are ready for buying, you need to consider your credit score and evaluate your job’s stability. Ideally, you should have a healthy emergency fund with a debt-to-income ratio of 36% or less.
All expenses related to buying and maintaining a home are an investment in your personal property. Meanwhile, monthly rent payments disappear in someone else’s pocket for good. So, which is better in the rent vs buy dilemma.
Important (and Sometimes Surprising) Benefits of Owning a Home
Besides saving money on rent payments, homeownership comes with other important benefits.
1. You Call the Shots
When you own a home, you make choices about the wall color, landscape design, room layout, and much more. As a tenant, you have to follow the rules set by the landlord, whether you like them or not.
2. You Enjoy Independence
While some renters prefer to ignore it, they live with a Damocles’ sword hanging over their heads. At any time, the property owner may decide to sell the house, find new tenants, raise rent payments, and so on. Any day, you could be forced to make rushed choices about relocating.
As a homeowner, you don’t depend on someone else’s whims.
3. You Hedge Against Inflation
While experts argue about real estate being a valuable investment, the prices speak for themselves. The same house that cost you $250,000 in 1995 went up to about $420,000 in 2019.
Even though these numbers come with hundreds of nuances, the bottom line is that real estate investment can help hedge against inflation.
4. You Can Get Tax Benefits
As a homeowner, you can take advantage of numerous tax benefits.
- Mortgage interest deduction
- Local tax deduction
- State tax deduction
- Tax-free profits on the sale of a home up to $500,000
Even though each situation is different, you are likely to be eligible for several deductions.
5. You Can Predict Expenses
While the costs of owning a home are often higher than renting expenses, especially while you are paying off a mortgage, they are mostly predictable.
When you are renting, it’s hard to predict the rise in rent payments and expenses related to looking for another place when the landlord asks you to move out.
6. You Build Equity
When you pay down the mortgage, you can build equity in your home. As the property value increases and/or the debt amount decreases, the equity goes up.
You can use your home equity to finance renovations, pay for children’s college education, supplement retirement savings, and much more.
7. You Enjoy Peace of Mind
Even though it’s often a nerve-wracking process, in the end, buying a home is enjoyable. When you settle in your own house or apartment, you experience relief, peace of mind, and satisfaction of achieving a substantial goal.
Advantages of Renting a Home
While owning a home comes with numerous benefits, so does renting. Depending on your life situation, you may find that these advantages are the deciding factor.
1. Taking Full Advantage of Flexibility
When renting a home, you are free to decide when you want to move out. If you’re unhappy with the neighbors or hate the view, all you have to do is cancel the contract.
The same goes for switching jobs or schools, moving to another state or finding the home of your dreams. You are free to make choices without looking back at mortgage payments and responsibilities.
2. Enjoying a Certain Financial Freedom
Owning a home comes with numerous financial obligations. You are responsible for fixing roof leaks, buying insurance, paying property taxes, etc.
When you rent, you don’t have to worry about all of the above. Meanwhile, you don’t have any obligatory mortgage payments to make.
3. Making Lifestyle Choices
As your life situation changes, you can either rent a bigger or smaller home, move back with your parents or move out of state. If you lose a job or decide to go back to school, you can always find a new rental property according to your current needs. When you own a home, adjusting to such lifestyle changes could be harder.
Learn More About Rent vs Buy
The road to answering the difficult “rent vs buy” question involves serious thinking, analyzing, compromising, and planning.
If you have sufficient funds, a good credit score, a desire for stability, and a passion for smart investments, buying a home could be the right choice. Getting pre-qualified for a loan can help you get a better picture of what your options are.
If you are going through some tough financial times or need more flexibility with your housing choices, renting may be a suitable decision.
For more information about buying your dream home when the time is right, please contact us today.