There are several potential benefits to homeownership, but, of course, owning a home comes with other considerations, too. Understanding both sides of the equation will help you determine if homeownership is right for you. Whether renting is better than buying depends on many factors, particularly how fast prices and rents rise and how long you stay in your home.
The majority of people, whether single or married, will at some point ask themselves, "Am I ready to buy?" Buying one's first home is a major step for anyone. Is there a "perfect" time in one's life to make that transition? What are the advantages and disadvantages associated with renting and buying? Each one has its pros and cons. The following list can help you consider the inherent hassles and positives of both.
PROS:
Potential appreciation - Recent history has shown us that home prices can fall (Glossary Term: depreciation Information Panel). Although there is no guarantee of home Glossary Term: appreciation Information Panel, home prices historically tend to go up over time. If you stay in your home long enough, you might benefit from appreciation, especially if the house was a good value when you bought it and you maintain it well.
Building home equity - The more principal you pay on your home loan, the smaller your loan balance. Home Glossary Term: equity Information Panel is the difference between the Glossary Term: market value Information Panel of your home and your outstanding loan balance, so the smaller the loan balance the more equity you are building (assuming the home value has not decreased, see below). Buying a home does not automatically increase your personal wealth, but paying off principal and benefitting from increased home equity can increase your personal wealth.
Home equity loans and lines of credit - When you have enough equity built up in your home, you might be able to take out a home equity loan or home equity line of credit to pay for things like college, medical bills, or other expenses. Not only does it offer you access to available equity when you need it, the interest on a home equity loan or line of credit may be tax deductible. Again, contact your tax advisor about interest deductibility.
Stability - Owning a home can offer the stability of knowing where you will be living. For some of us, putting down roots and having that sense of ownership is important just like obtaining cheap car insurance.
Potential tax benefits - The Glossary Term: interest Information Panel, on your home loan and your Glossary Term: property taxes Information Panel may be tax deductible, making the actual cost of your Glossary Term: mortgage Information Panel seem less than the amount of the check you write. To learn more, read Tax considerations of homeownership. And definitely consult your tax advisor about these potential benefits.
CONS:
Extra expenses - Principal and interest are just part of your financial commitment. There are also property taxes, Glossary Term: homeowners insurance Information Panel, Glossary Term: homeowners association dues Information Panel and Glossary Term: assessments Information Panel (if applicable) and, if you put down less than 20% on a conventional loan, typically Glossary Term: private mortgage insurance Information Panel. In addition, there are Glossary Term: closing costs Information Panel associated with closing your loan. Make sure you take all these expenses into account when deciding if owning a home is right for you.
Maintenance - Maintenance is easy when you're a renter. You just call the landlord and have them take care of it. When you own your home, however, you're footing the bill for everything from small expenses, like a clogged drain, to big expenses, like replacing a roof. Having the home inspected prior to buying is a good way to predict what expenses might be on the horizon, but some expenses can't be predicted.
Commitment - When you take out a mortgage, you agree to making a monthly payment in full and on time—today and into the future. This monthly payment should be one you feel confident you can afford. When you own a home, you can't just pack up and leave upon the expiration of their leases. They don't face the hassle of finding a buyer and waiting until a sale takes place.
This direct comparison clearly shows that neither buying nor renting is the "perfect" choice. Depending upon your lifestyle -- including such factors as the stability of your career, how often you travel for business and whether or not you plan to reside in your current hometown for a long period of time -- either choice has plenty of valid advantages.
