Renting vs. Buying a Home
Buying a home versus renting a home is a big decision. Most would argue that there are many good reasons for buying and owning a home. There are tax advantages of owning your home and this is perhaps the best vehicle for growing wealth for your family. However, there are times in your life when renting a home makes more sense.
Reasons for Renting:
Lower Cost of Acquisition -
Most rental houses only require the first month's rent plus one month's security deposit in order to move in. This is generally a lot less money than buying a home because of the closing costs and down payments required.
Lower Qualifying Standards -
Proof of employment, income, a decent credit history (or a good explanation), and references is all you need to rent a home. Buying a home has higher qualifying standards, including minimum credit scores, job stability, and verification that your income is sufficient to make the loan payments.
Freedom to Move -
This is key because most rental homes only commit the tenant to a one year lease. Therefore, if you think you are not going to stay in the area for very long, renting is a great way to go. However, if you plan to stay in the area, why throw your money away on rent when you could be paying towards ownership of your home. Instead of paying rent, your monthly mortgage payment is building future equity ownership in your home.
Less Maintenance and Cost -
When renting, if something breaks, a simple call to the property management company will generally solve the issue in 48 hours or less. Plus, renters don't have to carry more expensive homeowners insurance and pay property taxes.
Benefits of Owning:
Peace-of-Mind and Security -
It is your home - you own it. The only way you would be forced to move out of your home is if you stop making the mortgage payments, forcing the bank to foreclose on your property. Essentially, you are in control of your occupancy.
Tax Benefits -
The U.S. government has created certain tax incentives for homeownership that are only available to homeowners.
*Disclosure - check with your CPA or tax attorney to verify your own unique filing scenario.*
The following three components of your home mortgage may be tax deductible:
1. Interest on your home mortgage
2. Property taxes
3. Origination/discount points
Stability -
Remaining in one neighborhood for several years lets you become an active part of your community. It also creates the opportunity for your family to establish lasting friendships and gives your children the benefit of educational continuity.
Appreciation of Property -
Historically, even considering the occasional short periods of declining value, home prices on average have exceeded consumer inflation. From 1972, through 2005, home prices increased on average 6.5%, according to the National Association of Realtors ®.
Forced Savings -
Your monthly mortgage payment is slowly paying down the principal amount for your mortgage loan. Additionally, When you sell your home, the capital gains on the sale are exempt from capital gains tax. Based on the Taxpayer Relief Act of 1997, if you are single, you will pay no capital gains tax on the first $250,000 you make when you sell your home. Married couples enjoy a $500,000 exemption.
*Disclosure - check with your CPA or tax attorney to verify your own unique filing scenario.*
Increased Net Worth -
Few things in life have a greater impact on net worth than owning a home. Let's face it, your home is your biggest investment. In comparison of renters versus homeowners, the Federal Reserve Board of Consumer Finance found that the average net worth of renters was just $4,000 compared to homeowners at $184,400.
Pink and Purple Walls -
Yep, you can paint the inside of your house any color you choose. Depending on whether or not there is an HOA in place, you could probably do the same thing on the home's exterior. Landscaping, flooring, built-in shelving...it's your property to renovate and grow in. You will experience pride of ownership.
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