Should I Rent Or Should I Buy?
Mortgage rates are ultra-low and there’s an argument to be made that there’s no better time to buy a home than right now.
Affordability is high, low-downpayment loans remain readily available, and home prices continue to ratchet higher — as do rents in many U.S. markets.
However, because buying your first home will likely be the largest financial commitment you’ve made in your life so far, it’s in your best interest to weigh the pros and cons of homeownership; and there are both.
Last decade’s housing market downturn happened once, so it can happen again, which would affect homeowners who have to suddenly sell or move.
Renters are right to be cautious.
Yet, mortgage rates are currently super low, which has lowered the cost of a monthly mortgage.
In many markets, it’s now cheaper to pay on a loan than to pay monthly rent to a landlord. This is especially true in cities such as San Francisco and Seattle where rents are rising faster than wages.
Renting can give you flexibility, but homeownership can give you wealth. Which is more important to you?
The Case For “Buying A Home”
Buying and owning a home is the essence of “The American Dream”.
Each month, your housing payments go towards owning your home instead of renting it; building your personal wealth and assets instead of someone else’s.
History has shown that homeownership is a clear path to wealth-building, with homeowners boasting net worths which are multiples higher than the net worths of renters.
This happens because renter “own nothing” while living in a home. A homeowner, by contrast, owns the home and, as the home’s value changes, those changes are bestowed upon the owner.
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Historically, real estate has increased in value nationwide. There’s no guarantee that values will continue to rise, but in the majority of U.S. markets, it’s likely over the long-term.
So, if you buy a home for $250,000 — regardless of your mortgage! — and that home’s value rises to $300,000, you have accumulated $50,000 in additional net worth.
Renters can’t make that same claim.
Owning a home can anchor a household, as well, offering stability and predictability to life. When you own your own home, there’s no landlord to give you “30 days notice”, after all.
Then, there are the tax benefits to consider.
For homeowners who itemize deductions on their federal tax returns, owning a home grants access to multiple tax breaks, including the monies spent on mortgage interest each year and the monies paid in real estate taxes.
Editor’s Note: Consult with an accountant before making tax-related decisions.
The Case For “Renting A Home”
There are reasons to rent a home instead of buying one. Some are financial, and some are lifestyle-related, but each has its merits.
For example, when you rent a home, your investment in the property is close to zero.
You make no upfront investment in the home, save for a security deposit; you make no payment for home repairs and “broken appliances” when things go wrong; and, the responsibility to pay real estate taxes falls to your landlord.
Home repairs can cost 1.5 percent of the home’s value annually.
Additionally, as a renter, you assume no risk that the home will lose value between the date you move in, and the date you choose to sell.
Falling home values vexed homeowners late last decade, with many losing money through the forced sale of “underwater homes”.
There are lifestyle advantages to renting a home, too.
When you rent a home, you can take an out-of-state job with little or no hassle; or, can move for a relationship, if you choose.
You can also change neighborhoods as you age, or as your household’s housing needs change. For example, households with young children may prefer to live “near the action” only while their children are young.
Homeowners don’t have this flexibility. In order to move, typically, a home must first be sold, a process which can take weeks or months.
Is It Better To Rent Or Buy?
So, is it better to buy or to rent?
The answer is that it depends on your personal preference. If you prefer flexibility, renting can be a better choice. However, if you aim to build wealth, owning a home has been a proven way to do it.
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The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.