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Buying
vs. Renting Your Home
Is now the right time for you to buy a home? You have
many options to consider and choices to make. Buying a home is a big
responsibility, financially and emotionally, but, most people want to own a
home. Home ownership often is referred to as "the American dream." Why is it so
special? Among the reasons: Real estate often is an excellent investment,
perhaps the number one source of wealth-building for families.
Owning a
home has many benefits. When you make a mortgage payment, you are building
equity - and that's an investment. Owning a home also qualifies you for tax
benefits that may assist you in dealing with your new financial responsibilities
- such as homeowners' insurance, real estate taxes, and upkeep - which can be
substantial. But given the freedom, stability, and security of owning your own
home, they are definitely worth it! Owning your own home also can be a great
source of pride and stability.
But home ownership may not be for everyone.
It's a big financial commitment - starting with the initial shock of your
purchase (including a "down payment" and fees paid to a real estate agent, the
lender and others) followed by years of monthly mortgage payments, real estate
taxes, property insurance and maintenance costs. When you decide to purchase a
home, you accept responsibility for paying for these expenses. They are
additional costs to your monthly mortgage payment and should be included in your
budget estimates: Property Taxes and Special Assessments, Home/Hazard Insurance,
Utilities, Maintenance, Home Owner Association (HOA) Fee if applicable.
One of the advantages of renting is being generally free of most maintenance
responsibilities and the flexibility of moving almost as soon as you decide. But
by renting, you lose the chance to build equity, take advantage of tax benefits,
and protect yourself against rent increases. Also, you may not be free to
decorate without permission and may be at the mercy of the landlord for your
housing needs. There are many considerations in choosing between renting and
buying:
- Do you want to spend several years in a house and in a neighborhood?
- Do you enjoy lawn and garden work?
- Might you need to move suddenly to care for family?
- Do you want to keep your assets accessible in the bank, or do you want to
invest long-term in a home?
There are tax advantages to home ownership
in both the short and long terms. The mortgage interest and real estate taxes
are tax deductible, which allows you to subtract part of your housing-related
expenses from your taxable income, which could reduce your tax bill. In many
cases, the amount of money a renter spends on rent can be about the same as or
less than the amount a homeowner spends on a mortgage. With the tax benefit for
homeowners, the savings can be significant.
Buy
vs. Rent: Pros and Cons
| . |
Advantages |
Considerations |
| Buy |
Property builds equity |
Responsible for maintenance |
| Sense of community, stability, and security |
Responsible for property taxes |
| Free to change decor and landscaping |
Possibility of foreclosure and loss of equity |
| Not dependent on landlord to maintain property |
Less mobility then renting |
| Rent |
Little or no responsibility for maintenance |
No tax benefits |
| Easier to move |
No equity is built up |
| . |
No control over rent increases |
| . |
Possibility of eviction |
Buy
vs. Rent: Cost Comparison
The chart below shows a cost comparison for a
renter and a homeowner over a seven year period. The renter starts out paying
$800 per month with annual increases of 5%.
The homeowner purchases a
home for $110,000 and pays a monthly mortgage of $1,000. After 6 years, the
home owner's payment is lower than the renter's monthly payment. With the tax
savings of home ownership, the home owner's payment is less than the rental
payment after 3 years.
| Yrs |
Rent |
Mortgage Payment |
Monthly Diff. |
After Tax Savings |
Yearly Diff. |
After Tax Savings |
| 1 |
800 |
1000 |
-200 |
-50 |
-2400 |
-600 |
| 2 |
840 |
1000 |
-160 |
-10 |
-1920 |
-120 |
| 3 |
882 |
1000 |
-118 |
+32 |
-1416 |
+384 |
| 4 |
926 |
1000 |
-74 |
+76 |
-888 |
+912 |
| 5 |
972 |
1000 |
-28 |
+122 |
-336 |
+1464 |
| 6 |
1021 |
1000 |
+21 |
+171 |
+252 |
+2052 |
| 7 |
1072 |
1000 |
+72 |
+222 |
+864 |
+2664 |
| 8-30 |
. |
. |
Savings increase every year |
The
Trivia Block
Who said, "Real Estate is the best investment in the world
because it is the only thing they're not making anymore?"
Will
Rogers, stage and film star, who began his career as a rope-throwing cowboy.
