Renting vs Buying a Home: Which is Right for You?
For many people, owning a home is the ultimate fulfillment of the American Dream. Buying a home is a major life decision, but is it right for you? Even if you think you’re ready to achieve the American Dream, consider the current market, your financial circumstances, and your plans for the future when deciding whether to rent or buy your home.
Which is better, buying a home or renting one? Let’s take a closer look to determine which one is right for you.
Is Renting or Buying Better?
What are the Advantages of Buying a Home?
- Every mortgage payment that you make brings you closer to owning your home. When you pay rent, that money doesn’t go toward homeownership. You’re not building equity or potentially increasing your personal wealth as you do when making payments on your mortgage.
- When you own a home, you could have a fixed monthly payment that doesn’t change. When you rent, your monthly payment could increase every year.
- When buying a home, you may be able to cash in on appreciation. Your home may increase in value over time depending on how the market is and how well you maintain your house. For example, if you purchase your house for $300,000 today, it could sell for $360,000 later on down the road when you decide to sell.
- Owning a home could have tax advantages. * Many of the costs of owning a home, like property taxes may be tax deductible. If you’re paying off your mortgage, you could get to count your mortgage interest as a deduction when you file your tax return at the end of the year. You would need to consult with your tax advisor to confirm these tax advantages.
- You have the freedom to do home improvements on your house. As the owner of your home, you’re able to do any home improvements that you would like. If you want to do a simple roof repair or update your kitchen, you’re able to and you don’t have to get permission from a landlord. This also includes anything to enhance the aesthetic appeal of the home like painting the walls or hanging picture frames.
What are the Advantages of Renting a Home?
- If you’re trying to become debt free and pay off any student loans or credit cards, renting a home may be the better option for you. While many view owning a home as an investment, taking out a mortgage is still a type of debt.
- If you’re travel frequently for work or having to relocate often, then consider renting. Keep in mind, you should stay in your home for a few years in order to make buying a home worth the investment. So, if you’re considering relocating sooner than that, renting may be better for you.
- Renting usually requires less up-front costs compared to buying a home. When you own a home, its value is subject to the fluctuations of the market and when you rent, you don’t have to worry about the market because that risk falls on the property owner.
- When you rent, you don’t have to pay for maintenance. If your water heater stops working or a pipe bursts, you don’t have to fix it yourself. Instead, your landlord is obligated to make the repairs.
Is Renting Cheaper than Buying?
Many people believe that renting is cheaper than owning a home, but that’s not always the case. By renting, there’s a chance that your landlord may increase your rent each year. When you buy, your monthly principal and interest payments are essentially locked in with a fixed-rate loan.
You can use a mortgage calculator to estimate your monthly payments. Also, when your home’s value goes up and your mortgage principal goes down, you’re ultimately investing money in your home that you could get back when and if you decide to sell.
Also, keep in mind, if you paid the same amount for the next 10 years, that money you’re spending on rent could be put towards a mortgage payment instead.
In addition, you may think that you need to rent because you’re unsure if you qualify for a mortgage, or you don’t have the required down payment. However, there are a lot of unique loan programs with flexible qualification requirements and some that even provide down payment assistance.
Personal Factors in Buying vs Renting a Home
Some factors are more specific to your personal and financial situation when it comes to renting vs buying, such as:
How long you plan to live in your home—the longer you stay in your home before selling it, the better, as your costs will spread out over a longer period of time
The cost of housing in your area—if renting is too expensive where you live, purchasing a home may be the better choice
The opportunity cost of paying taxes insurance each month and your down payment—could this money be instead invested in the stock market or a CD account?
Consult with Us to Decide Whether to Rent or Buy
Deciding whether to buy or rent a house isn’t always an easy choice. You should carefully consider your financial situation and work with your New American Funding Loan Officer to find the loan that’s right for you. Give us a call today and see what you could qualify for!
*Consult your tax advisor