Should You Buy or Rent?

  • August 18, 2014

It’s the age-old question: should you buy a home or rent? Which one is better? The answer depends on you, your financial circumstances—and your dreams. Many people just prefer to rent. For others, home ownership is a passionate goal. If you’re one of them, we can help you determine when the time is right to pursue your dream.
If you’re not sure if you should buy or rent, here’s a snapshot of the advantages of each:
Why rent?
For starters, renters can save a lot of money, because they don’t have to pay property taxes, homeowner’s insurance, association fees and maintenance costs. Those can add up to roughly 3% of a home’s value. Beyond saving money, renters also have a lot of flexibility. If you need to move because of your job, no problem. You’re not tied to a home that you own. Plus, you don’t have to suddenly worry about selling your home and getting paid what it’s truly worth.
There are other advantages as well. Because renters typically spend less on housing than homeowners, they can use the extra money however they see fit—for example, investing for potentially higher returns.
For aspiring homeowners, there’s another advantage as well: you can rent until you’ve saved enough for a large payment—which will reduce the amount of your mortgage and monthly payments. You’ll also have the freedom to shop until you find exactly the right home to buy.
Why buy?
One of the obvious advantages of buying vs. renting is that renters don’t end up with a valuable asset that can increase in value over time. And the difference can be substantial: according to the National Association of Realtors, the median sales price of existing, single family homes rose 81% from 1993 to 2013.
Plus, every monthly mortgage payment increases a buyer’s home equity (which is the value of your home, less the amount you still owe on it). Think of it as an “automatic savings plan” in which you put away money each month that you might otherwise use for things that don’t increase in value.
Your home equity can be a rich source of funds to help you finance many of life’s big-ticket dreams, such as a college education for the kids. Plus, interest rates on home equity loans and lines of credit can be lower than those offered on other types of credit, and the interest can be tax deductible (ask your tax advisor to be sure).
Speaking of tax deductions, they are perhaps the #1 financial benefit of home ownership: your monthly mortgage interest payments are deductible. You may also be able to deduct other eligible expenses as well, such as certain energy-efficient improvements (again, ask your tax advisor to determine which deductions would apply to you).
There are other advantages of owning vs. renting as well. For example, monthly rents can increase to keep pace with inflation. But if you choose a fixed-rate mortgage, your monthly payments will never increase—which makes it easier to manage your budget with confidence.
Beyond all the financial benefits of home ownership, there is another that can be just as valuable, if not more. Owning a home can be another big step in achieving your life’s dreams… a place to raise a family and call your own. When you’re ready for that big step, we’ll be here to help.

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