While many are under the impression that owning a home should always be the goal, it’s actually not that straightforward. Trying to figure out the answer to which is better, renting versus buying home, is a little more complicated than you might think.
In fact, more households in the U.S. are renting than at any point over the past 50 years, according to a recent Pew Research Center analysis of US Census Bureau data. Whether you should rent or buy depends on your current financial situation, the market and other factors.
Of course, the costs associated with buying and renting are different. You’ll want to total up both options to determine which makes the most sense for you financially. When renting, you’ll most likely need to put down a security deposit, and in many cases the first and last month’s rent. Sometimes your monthly payment will include certain utilities like water and garbage – you’ll need to evaluate options individually, considering whether or not all or part of utilities are included. Most of the time you’ll have to pay for things like the internet, cable, and electricity.
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Those who buy a home usually have to come up with a lot more money. Experts recommend putting 20 percent or more down when buying a home. If you don’t, lenders typically require you to buy private mortgage insurance which will increase your monthly mortgage payments. In addition to those loan payments, you’ll have to consider costs like the home inspection, HOA fees, maintenance, and repairs as well as homeowner’s insurance.
Flexibility or Commitment?
Buying a home is a big commitment. If you get a job offer in another state or go through a major life change like a divorce, you might find yourself in a sticky financial situation if you can’t sell quickly. On the other hand, renting provides more flexibility. It’s much easier to get out of a lease than to sell a house.
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When buying a home, you may be better off when tax time rolls around. While not everyone can itemize deductions, if you can, you may be able to deduct mortgage interest and property taxes. There is no tax break for renting, which means you won’t be able to claim any deduction for mortgage interest and property taxes when you file your tax returns.
Homebuyers can capitalize on the equity their home will accumulate over time which means if its value goes up, you can cash in on the higher value when it comes time to sell. Provided you have a fixed-rate mortgage, there will be no need to worry about whether your monthly payment is going to increase, whereas renters may have to worry about rising rents. Once you acquire equity in your home you can also use it to your advantage and take out an equity loan or eventually a reverse mortgage after being in your house for several years. There is always also the option to refinance your home which may lower your monthly payment significantly.
Buying a home can be a good investment – while there are no guarantees, in most cases if you plan to live in it over the long term, you can reap a significant profit when you do sell.