If you’re like most people, buying your home may be the biggest purchase of your life. With that much money on the line, it’s no wonder the process can be stressful, frustrating and confusing. Before you begin, ask yourself, “Should I rent or buy a home?”
Many people think that renting is a waste of money and believe you should buy a house as soon as you can. But that’s not always true. Although there are many benefits to homeownership, renting has advantages as well. Which is better for you? You’ll need to weigh the pros and cons based on your own personal situation.
The benefits of renting …
Moving. When you need a new place to live, renting can be a lot simpler than homeownership. This is especially true if your job calls for you to relocate often. Just find a new home to rent, give the required notice, pack up and go. Repeat if necessary.
Call the landlord. When you rent, you don’t need to hire someone to do repairs – or pay for them. That’s why you have a landlord. Faucet leaking? Air conditioner blowing hot air? No worries – just call your landlord. You also generally don’t need to maintain the property when you rent. Most leases include services like snow removal and lawn maintenance.
Up-front costs. When you buy a house, you’ll need a significant amount of money at the outset. A down payment, closing costs and property taxes can all add up. If you’re renting, however, you’ll generally just need to pay two months of rent up front plus a security deposit to get into your lease.
Avoid market risk. Remember when the housing bubble burst in 2008? In the financial crisis that followed, many homeowners faced foreclosure or found themselves owing more money on their home than it was worth. Renters were by and large spared from any repercussions.
The benefits of owning …
Tax Deductions. While you’ll need to lay out a fair amount of money up front, there are ongoing tax benefits when you buy a house. Unlike rent, mortgage interest and property taxes are deductible on your federal income tax return, as long as you itemize. Qualified mortgage insurance may be deductible, too.
Equity. Homeowners can borrow against the equity in their homes using a second mortgage or home equity line of credit. Lenders generally allow you to borrow up to 90% of your home’s value and you can use the money a variety of ways, such as paying for home repairs, a child’s education or reducing high-interest loans.
Asset appreciation. You can buy your home with some of your own money and a lot of someone else’s. And if your home’s value increases, the profit is all yours when you sell. You’ll benefit from your house growing in value even though you originally used only a small amount of your own money for financing.
Home Sale Tax Exclusion. When you sell your home, you can exclude up to $250,000 of your capital gains if you’re single and $500,000 if you’re married in 2017, provided that you qualify. And again, don’t forget those ongoing tax deductions in the years before you sell. For many, those alone are enough incentive to buy instead of rent.
Stability and flexibility. While homeownership can have financial advantages, an additional benefit can be the sense of security you may not feel when you rent. You’ll also have unlimited flexibility to personalize your home, unlike renters who need permission from their landlord to make changes like painting or landscaping. You also won’t be subject to arbitrary rent increases, or be forced to move if the owners decide to sell their rental property.
Whether you rent or buy is ultimately a personal matter. It’s also a complicated one – so be sure to get clear on the details and understand the pros and cons of each to decide what makes sense for your situation.