Owning a home is part of the American dream, but today’s housing market is much different than it was years ago when it was easier to buy. The rent or buy a home debate has been a hot topic. It’s impossible to decide whether renting or buying is better because certain factors come into play depending on your situation.
Financially Ready to be a Homeowner?
Buying a home involves a down payment and paying a monthly mortgage that lasts anywhere from 15-30 years. This all depends on the home loan you qualify for. If you would like to read more about other monthly costs when owning a home, check out our other blog Costs to Consider Before Purchasing Your First Home.
The two biggest payments you’ll have when owning a home is the initial down payment and the monthly mortgage. The down payment is the lump sum you’ll pay up front that funds equity in the property. Keep in mind that the more money you put down, it will help to lower your monthly payment. The monthly mortgage is what you will pay each month which is made up of the loan principle (equity building factor), mortgage interest (amortized over the life of a loan), property taxes, and home insurance required by the bank. What lenders want to know is that you’re responsible, have a steady source of income, and are a credit-worthy candidate.
Pros and Cons of Homeownership
Advantages of Buying a Home
- Home values can increase and provide a nest egg for the future.
- Costs are predictable and more stable than renting because they’re ideally based on a fixed-rate mortgage.
- Interest and property tax portion of mortgage payments is a tax deduction.
- Pride in homeownership and ties to the community.
- Customization of the house with additions, construction, and landscaping.
- To pay off debts, such as student loans, you may be able to borrow against the equity of your house.
Disadvantages of Buying a Home
- Long-term financial commitment.
- Must be responsible for all upkeep and maintenance.
- Buying a home requires a down payment and closing costs.
- The value of a house may not increase as it depends on the housing market.
- Borrowing against your home equity to help pay off debts can lead to higher monthly payments than you can afford.
Renting Throwing Your Money Away?
The three main reasons people believe this is because they think:
- Renting is an expense. Mortgages can build equity.
- Rent does not have an end point.
- Renters do not benefit from rising home values.
Most homeowners believe each payment they make goes straight to building their equity. However, during the first 10-15 years, most of your mortgage payments are put towards interest.
Pros and Cons of Renting
Advantages of Renting
- Renting a home can sometimes be cheaper than paying a mortgage as utilities may be included.
- You have more relocation flexibility when you rent. Most leases are for 12 months and if your job requires you to move frequently, renting can be a better alternative. If you want to buy and aren’t sure where, you can rent for a year in a certain area to help you decide.
- Your landlord is responsible for performing nearly all maintenance and repair work on the property.
Disadvantages of Renting
- You can’t claim any deduction for mortgage interest and property taxes when you file your tax return, although the state allows a small percentage based on your earnings.
- Your housing costs aren’t fixed as your rent will most likely grow from year to year based on the housing market.
If you do decide to go and purchase a home, make sure you have a reliable mortgage broker who will work in your best interest. If you choose to rent, you can meet with the landlord face to face and make your own
Whether you decide to rent or buy a home, you need a great insurance policy. At TJ Woods, we offer both renters and homeowners insurance that will not only protect your residence, but also your personal property. Your personal property can be lost to fires, burglaries, and even lawsuits. Make sure you contact us and see how we can protect you today.
