Buying a home is often the most significant purchase we will make in our lifetime. Many prospective homebuyers look at building equity as one of the main financial reasons to jump into the market. At least, that was a major factor until the housing bubble of 2008. Since then, prospective homeowners may scrutinize more closely at the costs and advantages of such a large transaction.
While the effects of the housing crisis may have led to a more cautious approach to homeownership, the drive to become a homeowner has remained strong. If you’re making the decision of whether you should buy or rent your home, consider these points before making your decision.
Reasons to buy a home
- Equity. When you have a mortgage, each payment you make increases your degree of ownership in your home. While, with renting, reach rent payment you make goes toward paying your landlord’s mortgage or adding equity to his or her bank account. A general rule to follow is to commit to owning a home for at least five to seven years to ride out any price declines and recoup your down payment and transaction costs. In general, after this time, the costs of purchasing your home are more likely to be offset by accrued equity and increased housing value.
- Customization. Owning your home gives you total control of your living environment and security. You can upgrade and change your home as you see fit and create a sense of rootedness in your community. If you like tons of pictures on the walls, you can hammer away and add all the frames you want.
- Tax deductions. Uncle Sam offers a couple notable benefits to homeowners like the ability to deduct mortgage interest and property taxes – a perk renters don’t have. In addition, if you meet certain requirements, the IRS won’t apply a “capital gains” tax on the profits from the sale of your home. Depending on your tax filling status, you can make up to $250,000 in profit from the sale of your home if you’re single and double that if you’re married, and not owe any capital gains taxes.
- Freedom to make maintenance decisions. If you own a home, you have total freedom when it comes to maintenance decisions. You can fix issues and make improvements yourself or hiring a contractor of your choosing. And when you design your home, you have the freedom to choose a custom floor plan that will meet the needs of you and your family.
While a home is often a good investment for some, financial experts caution against purchasing a home simply as an investment. There’s no way around it; homes cost money. Roofs leak and appliances break and if you’re the homeowner, you’ll be the one picking up the bill at the end of the day. Thus, there are certainly instances where renting makes sense.
Reasons to rent a house
- Career uncertainty. Are you considering a job change that could take you clear across town or to another part of the country? Do you expect a pay hike or cut in the near future? Buying a home comes with responsibilities that tie you down more than renting. So, if you have any significant career or income uncertainty, renting may be a more sensible option for you.
- Location flexibility. If you’re new to a city, renting may be the best option for you until you get to know the area a little better. Renting allows you to explore an area before making a longer-term commitment to homeownership. While you’re renting, you can research and discover your favorite neighborhoods in the area where you’d like to live.
- No maintenance expenses. You don’t have to worry about running out to the hardware store when a pipe leaks or a doorknob gets jammed; instead, you just have to call your landlord and make him or her aware of the issue.
- Bad credit. Making on-time rental payments is a great way to build the kind of credit you’ll need to qualify for a home mortgage.
Is buying or renting a house more cost effective?
This is a critical question to ask when deciding between owning and renting a home. However, there is not a “correct” answer to this question. Rather, this depends on three factors: your market condition, where you choose to live, and whether you’re willing to do home improvement and maintenance projects.
Have you recently decided to rent or buy a home? What resources did you use when you were making your decision? Let us know with a comment below!