Whether it’s a good decision to rent or buy a home is a question that leaves most Americans undecided at some point in their lives. If you too can’t decide which the right choice is for you, you should weigh the pros and cons of both to make a decision confidently.
Pros of renting
• It’s more affordable: Buying a home involves making a hefty down payment, which is usually 20% of the property value in case you don’t want to add mortgage insurance to your list of expenditures. Compared to such huge costs, renting often appears to be a far more affordable choice.
• Avoid the additional expenses of buying a home: Your home’s mortgage payment estimate could be comparable to your monthly rent, thus making you think it’s better to buy a home. But other associated costs of owning a home, such as property taxes, homeowners insurance, maintenance expenses, closing costs, mortgage interest rates, etc. could be about 1% of the property value per year. Add to these the other unexpected costs like that of water heater, new furnace, etc., and renting would seem like a much better choice than buying a home.
• Skip tiring maintenance chores: Be it getting the furnace filter replaced or the gutters cleaned, home maintenance chores are labor-intensive and time-consuming. In contrast, you can just pick up the phone to get these tasks handled when renting.
• Flexibility and mobility: If you’re not sure where you would prefer to live 3 years down the line or if you would have enough money to pay for mortgage, insurance, etc., renting is preferable as you can quickly leave the house or even move to a smaller one. But selling your home and downsizing isn’t that easy. And if you wonder ‘how do I sell my house faster’, you may have to sell at a lower profit, or look for a company such as Cash Buyer New Jersey that says ‘we buy houses fast for cash’. Such options may take time, which could be disadvantageous if you’ve got a strict deadline to meet.
• Avoid financial and legal entanglements: Renting is preferable for many unmarried couples because they can move out quickly if the relationship sours or fails. But having bought a home would mean a messier break-up where complex financial and legal entanglements are involved.
Pros of buying
• Create your own asset: Paying your rent is just expenditure. Once that monthly check is paid to the landlord, the amount would never come back. But when you pay your monthly mortgage, you’ll be creating an asset of your own.
• Build home equity: You’ll be building home equity by paying your monthly mortgage. The money thus spent would come back to you when you refinance, sell, or take out a HELOC (home equity line of credit.
• Renting isn’t that affordable: At the first glance, renting may appear to be more affordable than buying a home. However, when you consider the multiple cost elements associated with it, such as the application fees, security and pet deposits, and renters insurance, it may no longer be that affordable. In contrast, buying a home lets you enjoy several tax benefits. For instance, you can typically deduct real estate taxes and mortgage interest from your yearly tax bill. You could even lower your tax liability by acquiring a Mortgage Credit Certificate (MCC) from your local or state government.
• Enjoy long-term rewards: Homes bought 30 years ago have almost always brought major financial gains for their owners via the equity they have built in their homes. Additionally, your home could act as a key contributor to let you maintain your lifestyle once you stop working because it would typically be your biggest asset when you retire.
Ideally, you should consider all the above factors to finally decide if it’s preferable to rent or buy a new home.