The “buy or rent a house” debate has talking heads on both sides that swear their way is the best way. Some say rent and some say buy. What’s the deciding factor?
It all comes down to your financial pictures, your financial goals, and your dreams. At least you’ve got choices!
Here’s some issues to consider when you think of buying a home. You might also want to read our How Much House Can I Afford topic.
A List of Reasons to Buy or Rent a House
Reasons to Rent
- Flexibility: If you are renting and become unhappy in your neighborhood or school district, then you have the ability to move to an area that better meets your needs.
- Career: If there is a chance that you will be changing jobs, or perhaps getting a promotion with your company requiring you to move.
- Income: If you don’t have a lot of job and income security.
- Bad Credit: If you need time to improve your credit rating after a financial crisis or bankruptcy.
- No Maintenance: When something breaks, you don’t head to the store; you head for the telephone and call the landlord.
Reasons to Buy
- Equity: Why help your landlord pay off their mortgage when you could pay off your own mortgage? When you have a home mortgage, a small amount of each mortgage payment goes to pay down your loan and helps you build equity in the home. You also build equity when your home increases in value.
- Tax Advantage: Uncle Sam allows you to deduct mortgage interest and property taxes from your taxable income. In addition, if you have lived in the home for three out of the last five years, you probably will not owe any capital gains taxes when you sell.
- Control: It is satisfying to many to decorate, landscape, and otherwise improve their own place!
Advantages to Buying A House
The answer to buy or rent a house is often an emotional one. Do you want to own? At the end of a hard day at work it is nice to come home to your own place. It gives you a feeling of accomplishment and satisfaction that you will be hard pressed to feel as a renter. If you purchase a home, you’ll be able to do whatever you please on your new property, without having to hear from a landlord. Owning your own property gives you a lot of freedom when it comes to having choices.
Buying is better than renting from a financial standpoint, in most markets, until the interest rate for a 30-year fixed rate mortgage reaches 10.5 percent. If you are planning on being in one location for four or more years, you should probably buy. When you buy, you get to reduce your taxable income by the amount of your mortgage interest and property taxes.
With buying a house giving you one tax write off, you can generally add others such as donations, tuition, accountant fees, and more that further reduce your taxable income. Even if you have to take out a loan for a sum of money that seems intimidating, you’re purchasing property that you will own, instead of renting and paying off someone else’s home mortgage.
To see what it’s like to buy or rent a house, there is this comprehensive calculator developed by The New York Times that you might want to try. You’ll need to enter a mortgage rate, so check out our Instant Rate Quote to get your projected mortgage rate, and check out the rent vs. buy calculator here:
Go to the NY Times calculator here.
When We Recommend Renting A House
On the other side of the “buy or rent a house” debate, there’s the option to rent a home. There are several reasons why you may want to choose to rent a house instead of outright purchasing one.
For younger property owners, renting may be the better option. Renting allows you to be flexible. As you focus on career development, promotions may force you to move across the country. There’s no sense in purchasing a home in an area that you quickly learn to dislike, or want to leave. Renting a property in an area allows you to evaluate what you want in a home and where you want to live.
Financially, renting a house can be a more responsible option for young professionals. If you have poor job security or poor income security as a self-employed or 100 percent commissioned worker, it’s smarter to rent than to default on a home loan.
If you have a bad credit rating, or large amounts of debt, renting a home allows you some time to rebuild your credit and to erase some of your existing debt. This way, when you’re ready to buy your house, you’ll have a better financial record and financial security.
Rising Home Values
Another factor that may influence your decision to buy or rent a house is the rise of property values (Click here to see a recent US News and World Report article about this trend). The Great Recession is over and home values are returning to pre-recession levels in most markets. Property values are expected to increase about 3 to 4 percent per year moving forward.
According to Forbes magazine, “Since 1975, housing has appreciated by an average of 4.5 percent per year. (Good data start in 1975.) Stocks, on the other hand, have a long-run average return of 9.8 percent including dividends.
Housing seems to be a great investment in good times because it is usually leveraged to a great degree. With a 20 percent down payment, a price increase of just 3 percent turns into a 15 percent increase in the homeowner’s equity. (Do some arithmetic with a hypothetical $100,000 home to verify that result.) Real estate proponents call this the ‘cash-on-cash’ return. However, leverage applies to the downside as well which we’ve all learned is possible.”
Buying a home now may be to your financial benefit. Buying now means that your home may be worth more when you decide to move in a few years. Keep this in mind when you’re debating when to buy or rent a house. What’s the trend for interest rates? If interest rates are projected to increase it is better to buy before a significant increase which also affects when you buy. Your interest rate affects your monthly payment and can really add up over the life of the loan.
Why Work With Us?
Carolina Home Mortgage is local and an independent small business. You’ll find our rates are low if you do the comparison. For 15 years we have helped clients become our neighbors. You don’t get to do that unless you offer quality and client-centered service.
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