With mortgage rates at an all-time low and housing prices looking attractive in many areas, it is tempting to think about accelerating plans for a home purchase. Is buying a no-brainer in these market conditions? The answer will be different for everyone and as is often the case, there are benefits for each choice.
Pros of Renting
Flexibility. If a great opportunity arises for a new job or you decide you want to move to a different geographical location for better schools or to be closer to family, it is fairly easy to leave a rental house or apartment. Selling your house or finding a renter for it is a whole different story as it requires time and money.
Home repairs aren’t your problem. When a leaky roof or clogged sink pops up, it’s a hassle for you as a tenant but the expense of the repair isn’t typically going to be your responsibility. This is a huge help in keeping extra household expenses to a minimum as part of your budget.
Stashing cash. Putting a down payment on a house requires a huge amount of cash and often leaves people with very little liquidity. It’s nice to have money in the bank in case emergencies or opportunities arise. Renting often allows you to build up a good cash buffer whereas buying a home depletes your cash store, taking you some time to rebuild it.
Pros of Buying
Tax breaks. One of the biggest benefits of homeownership is the tax deduction you are able to take for interest and taxes paid as a homeowner. If you earn a high income, this can help reduce your Modified Adjusted Gross Income, making you eligible for other tax deductions and credits you might not otherwise be able to take advantage of. It also can tip the scales in favor of buying if your tax-adjusted monthly payment comes closer to what renting would cost you anyway, especially considering you’ll be building equity.
Building Equity. When you have a mortgage, each month a part of your payment is going towards paying down the principle of the mortgage. That means the amount you owe on your mortgage gets smaller each month and, assuming your house keeps or raises its value (which, granted, is not a safe assumption these days), your equity in the house becomes greater. Essentially, in a calculation of your net worth, your ownership of your house will become greater month after month because you are reducing the debt you owe against it. Some people think of equity as “forced savings,” even though it won’t be realized until you actually sell the house.
Stability. If a landlord decides to raise your rent or make you move, there’s very little you can do. However, if you own, you have a sense of stability that you can be in that location for as long as you need to be.
Everyone’s situation is different (place in life, geographical location, housing market), but if you’re thinking of making the switch from renter to buyer, you may want to run some numbers through a calculator like this one first!