In general, we have two options when it comes to having a place to live. We can rent a dwelling that someone else owns, or we can buy a place of our own. Home ownership is touted as the “American Dream,” but whether you should rent or buy depends greatly on your individual needs and financial situation. Here are some things to consider about both options.
Advantages of Buying
* When you purchase a home, it is yours to do as you please with it. The terms of your mortgage may prevent you from renting it out or doing anything that would decrease its value, but you can remodel, add on and redecorate to your heart’s content.
* Buying a home allows you to build equity that may be leveraged for other purposes. Once you’ve paid down your principal balance, you may be able to obtain a home equity loan if needed.
* Home ownership carries a number of potential tax advantages. You can get a credit for things like mortgage interest, home improvements, installing energy-efficient heating systems and more. Consult a tax professional to find out if you qualify for such benefits.
* Real estate usually increases in value over time. This is called appreciation, and it can work to your advantage by increasing your equity without extra payments.
* If you get a fixed-rate mortgage, you won’t have to worry about your payments going up over time. When renting, your monthly payments are likely to increase due to inflation.
Advantages of Renting
* When you rent, the landlord is responsible for repairs. This can save you a great deal of money.
* You don’t have to worry about making a down payment. You may have to pay the first and last month’s rent and a deposit, but this is nothing compared to the tens of thousands of dollars usually required as a down payment on a mortgage. You also don’t have to worry about closing costs.
* Moving is much easier when you rent. Instead of trying to sell your home, collecting the money, and finding a place to stay until you buy another one, all you have to do is wait until the lease is up and give adequate notice.
* In general, renting costs less per month than buying. Rent is often less than a mortgage payment itself, plus you don’t have to pay real estate taxes, homeowners insurance or private mortgage insurance.
Whether you should rent or buy depends on several factors, some of them financial and some not. Whatever you decide, it’s important to be aware of the advantages so that you can take full advantage of them, and the disadvantages so that you won’t be taken by surprise. If you’re in doubt, you can always rent a place with a short lease while you’re deciding.
Filed under: Money Management