Many people in this country have a “renting mentality” that renting an apartment is cheaper and therefore better than buying your own home. However, the costs of renting are going up exponentially, and in many areas can be as much as a monthly mortgage on a home. In fact, the NY Times reports that in order for rent and utilities to be considered affordable, they should take up no more than 30 percent of a household’s income; however, that is becoming harder and harder for middle-income families in this tightening market that’s pushing up rent costs.
Let’s take a look at the financial benefits of buying vs. renting. When will you be ready to buy a house?
Renting
Pros
- No maintenance required, as the landlord takes care of broken appliances, exterior maintenance, etc.
- Less commitment: It’s easier to relocate for business or a short-term stay when you’re on a month-to-month lease.
- Avoid depreciating assets
Cons
- Rent payments can increase at the end of the lease agreement.
- Can’t build equity like you can in a home.
- Don’t get tax benefits.
- No control over living space: Can’t make major décor or renovation changes without approval from landlord.
Buying
Pros
- You can build equity: a good thing since homes typically rise in value from four to six percent each year.
- Take advantage of tax breaks for homeowners, deducting your mortgage interest payments and property taxes.
- Mortgage payments remain stable over the term of the loan, provided you have a fixed-rate mortgage.
- Your home is an investment that you can rent out and receive income for.
- You become part of a community that you’re invested in, getting to know your neighbors, participating in community events and building roots for your children’s future.
- You can make any décor and renovation changes you want. Even if you belong to a homeowner’s association, those organizations generally dictate how the exterior can look, not the inside, so you still have freedom.
Cons
- You have to do and pay for your own maintenance, such as landscaping, plowing, appliance fixes and window replacement.
- A home is not very liquid, meaning if you had to sell it quickly due to a divorce or job relocation, you may take a loss on it or you may not be able to sell it in time.
- You have to pay property taxes, which can go up year to year.
- While it usually does increase in value over time, this isn’t a guarantee. Your home can lose value over the years, especially in times of volatility.
- You must invest at least some cash in your home as a down payment, along with cash for closing costs that you won’t have available for other investments.
- You need to pay for homeowner’s insurance, whereas renter’s insurance is not always a requirement.
If buying a home is right for you, give Judd Builders a call today to get started on the home of your dreams!