If you want to ensure that you make the best use of your income, you may want to consider the financial pros and cons of renting vs. owning a home. What is best for you now may not be ideal in a few years but your main priority at any stage should be maintaining financial wellness. If you don’t do due diligence, you could put yourself in a situation that you’re desperate to leave.
Owning a Home – A Good Long-Term Investment
For many people, the decision to purchase a home is the biggest one they’ll ever make, in terms of finances. If you choose wisely, your home will grow in value over the years, delivering a good return on your investment.
Real estate tends to outperform many alternative investment options. It definitely beats inflation. For example, if you spend $100,000 on a house now, via a mortgage, that sum won’t have the same value 10 years from now.
A mortgage typically lasts around 25 years and once payments are completed, you won’t have to worry about rent in your old age. You’ll also have a valuable resource that you can pass on to your children, adding wealth to your family.
Tax Benefits of Home Ownership
Owning a home gives you significant tax benefits. You can deduct your mortgage interest from your federal taxable income. You can also deduct your property tax payments every year. If you’re paying a mortgage of $1,000 a month, you’re better off, just in terms of tax benefits, than if you’re renting for that sum.
Mortgages – Predictable Payments
Your payments tend to stay the same when you have a mortgage. There can sometimes be increases or decreases in the interest rate due to market conditions but for the most part, it’s unchanged.
If you’re paying $1,500 a month in 2023, you’ll still be paying $1,500 a month in 2030. If you were renting, your rent might have gone up three times during that period.
Renting – No Sizable Deposit
When you rent, at most, you’ll be required to make a relatively small deposit that is determined by the state. If you purchase a home, your deposit on the mortgage is calculated based on the entire value of the property, so you might have to come up with as much as $20,000 on a $100,000 house.
If you want to own a home, don’t let that discourage you. A lot of people owe that amount on credit cards and they put in the effort to pay it off. Some mortgage institutions allow a first-time homebuyer to save their down payment in a special account, such as a tax-free savings account.
They will finance a home of your choice more easily because you would have demonstrated an ability to make regular payments over two to five years.
You may also get a reduced rate on your mortgage with this type of account, so start saving today.
Renting – No Maintenance Stress
When you own your home, you’re responsible for everything, including the repairs. When you rent, if there are any repairs that need to be done, your landlord will handle it. You don’t have to find the money once it’s regular wear and tear. You also don’t have to develop your maintenance skills.
Renting – Relatively Unaffected By Housing Crashes
Unless your landlord raises your rent in an attempt to recoup their own losses, you’ll be unaffected by housing crashes when you rent. If you want to purchase a home, you can help to protect yourself from this sort of bubble by being cautious. If you see prices rising too dramatically, don’t rush in and buy. Wait and talk to a trustworthy financial advisor who can tell you whether the rise in house prices is sustainable.
Insurance – Renting is Cheaper
Renter’s insurance costs a lot less than homeowner’s insurance. As a homeowner, your insurance protects the value of your property. As a renter, your insurance ensures that you can replace the items inside the residence. That’s why you can get cheap renters insurance for just $18.
Renting – Relocate Easily
When you rent a property and a month later, a new development project pops up that makes traffic to your workplace seem like traveling through mud, you can move. If you get new neighbors who party until 3 a.m. every weeknight,, you can also move. Investing in a home slows your response time. Moving means finding a buyer, unless you have other solutions.
Rent-to-own homes are the best option for people who cannot yet afford the deposit on a house but are interested in owning their own home. Some properties are advertised as being in this category, so you’ll be able to start planning for a purchase from the day you sign the papers.
Sometimes an opportunity to acquire a home in this way arises after you develop a relationship with your landlord. They may already have thought of selling but become more comfortable with the idea because they are impressed by the way you treat the property.
If you’re interested in a rent to own arrangement, don’t hesitate to ask your landlord about the possibility. While this type of understanding requires you to commit to renting the residence for a particular time, purchasing it before the lease runs out is not always an option. If an opportunity comes up elsewhere, you can sometimes take it but sometimes you’ll be forced to buy the dwelling.
Lease-Option and Lease-Purchase Contracts
Lease-option and lease-purchase contracts are the two types of rent-to-own arrangements. A lease-option gives you the option of purchasing the property when the lease is up. A lease-purchase contract requires you to purchase the residence, so you don’t have as much freedom to change your mind.
If you want to buy a home, your dreams can come true. Utilize different forms of government assistance for first-time homebuyers. Use a rent vs. buy calculator to check that you are making the best financial choices at every stage of your life.