5 Reasons to Buy Rather Than Rent
For many people, owning a home makes more sense financially and from a lifestyle perspective than renting a home. If you’ve been renting a home and thought that you can’t afford to buy a home, you might be wrong. Below are the top reasons people buy instead of rent.
1. You Can Do Whatever You Want to The Property
Owning your home means you can paint your dining room whatever color you want, you can change tile to hardwood, and you can put a new hanging light in the foyer without asking a landlord for permission. Sometimes making these home improvements will increase the value of your property.
2. Investment Benefits
Owning a home is an investment many people can understand rather than buying stocks, because they get the daily lifestyle benefit of living in their investment, their home. But the financial benefits are also significant and can be more substantial than stock investing. As the home value increases, it accrues faster than a stock might because you get the appreciation on the entire home’s value, not just the gain your down payment cash invested.
3. Tax Advantages
Homeowners can deduct mortgage interest and property taxes when they file tax returns each year. Using the example of $300,000 home purchase with 10 percent down, a mortgage calculator shows a total monthly housing cost of about $1,731, with $1,231 in principal and interest (using a rate of 3.625 percent), $300 in property taxes, insurance of $67, and mortgage insurance (required when putting less than 20 percent down) of $133. The tax deductions homeowners get for mortgage interest and property taxes save $335 per month in taxes, so subtract this from total monthly housing cost of $1,731 to get an after-tax housing cost of $1,396. This significant savings from tax benefits can often make owning the same as, or cheaper than, renting.
4. Predictable Monthly Payments
If you get a fixed-rate mortgage on a home purchase, your mortgage payment can never change. Unless a renter is in a rent-controlled unit, their rent is subject to increase every year. Since the mortgage payment is the majority of the owner’s house payment, this creates a lot of budget predictability. For other costs, both owners and renters have insurance, and that cost can change slightly each year. While owners have property taxes that renters don’t, and property taxes can rise as the home appreciates, this cost is tax deductible.
5. Monthly Savings
When a homeowner is making a mortgage payment, a portion of that payment is paying the loan down each month, giving the owner more equity in their home. Using the example of a $300,000 home purchase with 10 percent down, the average pay-down per month in the first year is $423, and the average in the second year is $438, and the average pay-down per month keeps rising each year. This loan pay-down each month is required as part of the mortgage payment, but it’s the owner being required to invest in their own home. On the other hand, the entire portion of a renter’s monthly payment is going to a landlord and the renter has no investment in the property.
