Many young people are trying to decide if they should rent or buy a home. Buying a house will be the largest investment most people ever make. Before you decide, analyze whether renting or buying at this point in time makes the most sense.
The pros and cons
Buying a home – pros
- With a fixed-rate mortgage, you’ll know your principal and interest payment for the life of the loan
- You own the property so you’re building equity, and presumably, a return on your investment if you sell.
- You can deduct your mortgage interest from your tax return.
Buying a home – cons
- The biggest initial expense of home ownership is the down payment. Depending on the terms of your loan, you may have to put down as much as 20% of the purchase price. That’s a lot of money to part with at one time.
- You’ll encounter ongoing monthly expenses such as homeowner’s insurance, utilities, home repairs and general maintenance. Additionally, you can count on your property taxes going up regularly.
- Home ownership also comes with a responsibility to maintain your property, which will incur yearly fluctuating expenses, often large. You may also need to adhere to requirements from a homeowners’ association, which may also charge monthly fees.
Renting – pros
- When you rent, you’ll likely have to put down a security deposit, but there is NO big initial investment.
- Rent and utilities may increase annually, but other than that you’re pretty much in the free and clear as far as expenses go. Maintenance expenses are all up to your landlord to finance.
- When you’re renting, you can pick up and move when you’d like, according to the terms of your lease. If you’ve unintentionally rented in what turns out to be a less than desirable area, you’re not tied down by a 30-year loan or the inability to sell a house. When your lease expires, you can move on.
Renting – cons
- Rent is not building equity.
- No mortgage tax write offs available to renters.
Once you’ve examined the pros and cons for your situation, there are a few other things to consider before making the final decision to buy or rent:
- How long do you plan to live in the area? If a job change requiring a move might come your way, now might not be the best time to buy. Selling a home can take time and involve more costs.
- If you’re new to a city, take the time to get to know the area. A neighborhood that seems suited to your lifestyle now may not be to your liking in a year or so.
- When you sit down and crunch the numbers, does it make more financial sense to buy or rent?