Why you should buy a home vs. rent
For many people, owning a home makes more sense financially and from a lifestyle perspective than renting a home. While there are pros and cons to both, we wanted to point out some of the points of why you should buy. Even if you think you can’t “Buy”, it won’t hurt to contact a Mortgage Broker to help you understand your position and what you need to do to get yourself into a house.
Below are the top reasons people buy instead of rent.
1. You Can Do Anything You Want With the Property
Owning your home means you can paint your kid’s room any color you want, you can change your floors from carpet to wood, and you can put a new chandelier in the dining room without asking a landlord for permission. And sometimes, making these home improvements will increase the value of your property.
2. Appreciation Benefits, Including Leverage of Cash Invested
Owning a home is an investment many people can understand better than buying stocks, because they get the tangible daily lifestyle benefit of living in the home. But the financial benefits are also significant, and can be more substantial than stock investing. As a home appreciates, 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.
For example, if you bought $30,000 in stock and it appreciated 3 percent per year for three years, you’ve gained $2,782 on top of your $30,000 invested — and if you sold, you’d pay taxes on that money gained. If you buy a $300,000 primary residence with a $30,000 down payment (representing 10 percent down) and it appreciated 3 percent per year for three years, you’ve gained $27,818 on top of your $30,000 invested — and if you sold, you’d be exempt from paying any taxes on that money gained.
3. Tax Benefits
Homeowners are allowed to deduct mortgage interest and property taxes when they file tax returns each year. Using the same 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. Mortgage Costs Stay the Same as Rents Rise
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 building or neighborhood, their rent is at risk of rising every year. Since the mortgage payment is the bulk of the owner’s housing payment, this creates a lot of budget stability. As for the other costs, both owners and renters have insurance (though insurance isn’t required for renters like it is for owners), and that fee can change very slightly year over year. And while owners have property taxes that renters don’t, and property taxes can rise as the home appreciates, this fee is tax deductible.
5. Forced 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, so it’s like forced savings that benefits the owner — whereas the entire portion of a renter’s monthly payment is going to a landlord.