Homeownership can be a personally and financially rewarding endeavor, but it’s not for everyone. Choosing whether to rent or buy affects many aspects of your life, so the benefits of each should be carefully considered.
- Equity: Each mortgage payment brings you one step closer to owning your home. The money you pay on your mortgage increases your net worth as long as the home retains its value. As your outstanding loan amount decreases, the proceeds you retain if you sell is larger. Or, if you keep your home until the loan is completely paid, you eliminate your housing expense, other than taxes, insurance and maintenance.
- Appreciation: While not guaranteed, your home likely will increase in value over time depending on factors such as the market and renovations you perform.
- Tax Benefits: Some of the costs associated with owning a home are tax-deductible such as property taxes and the interest on your mortgage. These tax credits can help balance the costs associated with owning and maintaining a home.
- Stability: While your mortgage payment can increase due to a property tax or insurance premium spike, a landlord can raise your rent payment with each new lease, or worse, sell the home and force you to leave.
- Customization: An attractive aspect of homeownership is your ability to make it your own. You can paint, landscape, plant a garden, knock down walls, renovate your kitchen, put in a pool, or other customization to meet your changing needs.
- Mobility: Renting gives you the freedom to move to a new location each time your lease expires. Buying and selling a home involves significant costs, making it cost-prohibitive to move frequently.
- Maintenance-Free: Your landlord is responsible for maintaining the property and performing repairs, renovations and updates. If your air conditioning system breaks, you generally won’t have to pay a dime to replace it, whereas with home ownership, repairs are your responsibility.
- Lower Credit Requirements: Your credit has a tremendous impact on your ability to qualify for a mortgage loan and affects the interest rate you will pay. If your credit score is low, your interest rate and mortgage payment will be higher. Renting may be the best choice while building up your score.
- Costs: Buying a home typically comes with a variety of up-front costs associated with the purchase, including earnest money, your down payment, appraisal, inspection, property taxes, first year of homeowner’s insurance, and closing costs. Ongoing costs include homeowners insurance, maintenance, private mortgage insurance, taxes and utilities.
There is no one-size-fits-all answer to the rent vs. buy question. Homeownership is a big step. Consider the financial factors specific to you and your situation, such as the status of your emergency fund, the amount of down payment saved and the payment you can afford. Without an emergency fund, a necessary repair on your home could put you in a financial bind. Take the time to consider your circumstances, run the numbers, and do the research. Visit midfirst.com/financial-resources/calculators for handy rent or buy, home affordability and mortgage payment calculators.