February 2, 2017

Should You Buy or Rent?

The choice to buy or rent is a tough one, and one that has consumed many young people countless times over. Due to the significant up-front costs of owning a home, many choose to begin by renting and wait on making a purchase until their career is a little further along, they’ve got a bit more money saved up, or their family is growing and they need more space. The “right answer” is going to be different for every person or couple, but here are some advantages and disadvantages of each to help you make the choice that’s right for you.

Advantages of Owning a Home:

Home Equity: The big advantage to taking the plunge and buying a home is that you’ll be building equity as a homeowner, which is just a fancy way of saying you’re spending your money on something you actually own. As a renter, every dollar you spend on rent is gone forever. As an owner, some of your monthly mortgage payment goes to interest and taxes, but the rest pays down the principal, the actual value of the house. Your house.  Learn More About Mortgages

Projects: Once you reach certain levels of equity, say 20% or so of the value of your home paid off, you can tap into that money via a home equity loan. Or, you can refinance your mortgage to a lower interest rate. Projects that you complete around the house, like new windows or redoing the kitchen, add value to your property, often more than what was spent on the project. This reveals another advantage of ownership; you don’t have to answer to Joe the landlord anymore. Want to paint the ceiling hot pink? Go for it. Thinking of knocking down that wall? Talk to a contractor and make it happen. Throw on a deck while you’re at it.

Tax Benefits: In addition to equity and creative freedom, homeowners can also receive attractive federal tax benefits and deductions. If you’re considering purchasing your first home, ask your banker if there are any federal programs available to first time homebuyers, as some can easily offer a grant of $10,000 or more. Programs like this aren’t available to renters.

Putting Down Roots: Finally, owning a home creates more of an opportunity for you to put down roots in your community and can give more of a sense of permanence than renting. You have no landlord doing showings of your place, raising your rent, or giving you notice that they’re turning their apartments into condos, leaving you scrambling to find a new place to live.

Disadvantages of Owning a Home:

Cost: Buying a home costs money. No surprise there, but it might cost a little more than you’d initially think. First, expect to pay no less than 5% of the homes value as a down payment. Some may choose to save up double or quadruple that amount before signing on the dotted line. But once the ink is dry and the keys are in hand, more costs await.

Unpredictable Costs: You may have had to pay utilities on top of rent in that apartment, but in a home you’re responsible for every expense from garbage removal to replacing the furnace when it goes out. These expenses can sneak up unexpectedly on first time homebuyers. In the words of comedian Mitch Hedberg, “I don’t wanna go to the Home Depot, man. I wanna go to the Apartment Depot. It’s just a bunch of people standing around going, ‘We ain’t gotta fix a thing!’”

Long Process: In addition to the upfront costs, finding the right home, closing on it, and then wanting a change and going through the process of selling and relocating is quite an ordeal. If you’re in a stage of life where mobility is important to you, buying a home may not be the right choice at present. The entire home buying process is written step-by-step in our free home buying guide.

What’s the best option?

The decision to buy or rent depends greatly on where you are in life. If you don’t have much saved up right now, or if mobility on short notice is important to you, you might choose to rent a while longer. On the other hand, if you have some money saved up and want to put down semi-permanent roots, buying a home is a great way to build equity and create a living space that is all your own.

Not sure if buying is the right decision for you? Tim Demaster (tdemaster@myfirstnational.com) is a great resource. He can give honest advice for your particular situation.

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