Buying a home may or may not be right for you, just as renting an apartment may or may not be right for you. However, on a general level, you may be likely to hear that buying a home is better.
Some people prefer the convenience of having certain things taken care of, such as repairs and maintenance (snow removal, lawn care, etc.); freedom from the responsibilities of home ownership appeals to them. Renting may also be better for those who don’t plan to be there for long or have to move often; those who live in areas, like California, where home prices are much too expensive; or live in areas where housing space is at a premium.
But others enjoy the idea that their home is theirs and they can do what they like with it; they can decorate to their own tastes and take care of things their way. The biggest reason people will give you when asked why they chose buying over renting is that when renting, you pay so much every month and have no ownership, nothing to show for all your hard-earned dollars.
Owning a home has many benefits. First, when you buy a home, it becomes an asset because with every mortgage payment you make, part of that money goes toward principal. The more principal you pay off, the more equity you have in the home. Second, mortgage interest is usually tax-deductible*. Third, if you sell your house, you could walk away with up to $250,000 in profit from the sale; $500,000 if you’re married.
How to Decide
The first thing you need to do is decide how much you can afford, whether it’s to rent or to buy. If you’re just starting out and, perhaps, still living with your parents, you’ll want to figure out how much you can afford for rent as well as for other expenses (heat, water, electricity, food, gas, phone, etc.).
If you’re thinking of buying a home, you need to know how much you can afford. Don’t forget that with homeownership comes the responsibility and cost of maintenance and repairs. You wouldn’t want to buy a home and not be able to pay for repairs to a broken water heater.
Ask yourself: how much will your monthly mortgage payment be? How much will you need to close on your mortgage? And how much you can afford to put down? There are online calculators available, such as home affordability calculators that will help you to get a good estimate of how much home you could afford. Keep in mind you may be allowed to get your closing funds from other sources (such as monetary gifts from family members). And there are loans out there that, if you qualify, allow low or zero down payments. As with shopping around for the right home, it’s important to shop around for the right loan. Do your research; ask friends and family members for referrals; go online.
Many people will tell you that buying and owning a home is better because it usually makes more financial sense. Ask yourself a lot of questions and decide carefully because whether you should rent or buy is ultimately up to you.
* Please consult your tax advisor.
By Diane Tuman