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The housing market has been making a comeback over the past year or two, with several markets seeing double-digit price increases year over year. With interest rates still very low compared to historical averages, many Americans are considering buying a home, particularly if the monthly payments are similar to what they are currently paying to rent a comparable property.
So if the housing market is likely to continue recovering, does it make sense to jump in before prices (and interest rates) go higher? As always, the answer depends largely on your individual circumstance. To help better determine your best option, here are some of the advantages to renting vs. owning your own home.
Benefits of Renting
- Flexibility: When you rent a house, townhome or apartment, you are normally only asked to commit to a one year lease. There may, however, be instances when a multi-year lease makes sense if it lowers the rent significantly. In either case, renters have a much shorter commitment to a property than a homeowner. If something changes in their lives, they can walk away without having to stress over selling the property.
- Little to No Maintenance: In most cases, if something goes wrong with the property, it is the responsibility of the landlord to fix it. Renters of single-family residences may be asked to mow the lawn and keep the home in good overall condition, but if a repair comes up, it is the landlord who will have to fix it.
- Fixed Costs for the Lease Term: Renters have a more predictable monthly housing cost, at least for the term of their lease. There may be future rent increases, but landlords must always keep them within the scope of the overall rental market in the area. So in general, renters do not need to worry about sharp increases in monthly housing costs from things such as property tax, homeowner’s insurance, and association fees.
Benefits of Owning a Home
- Freedom to Customize Property: As a homeowner, the house belongs to you. This means you can paint the walls whatever color you like, and make other changes to the home to suit your needs.
- Interest and Property Taxes are Deductible: Owning a home allows you to deduct the portion of your monthly mortgage payment that goes toward interest and property taxes. In the beginning of the term, this can amount to over two thirds of your monthly payment. These tax advantages alone are a major benefit to home ownership.
- Long-Term Equity Buildup: Even with the recent housing collapse, home values are still generally a good long-term investment. From whatever point you enter the market, you can usually expect significant appreciation over the course of a decade or two. So while having a place to live, you not only enjoy great tax savings but you also build an asset that is likely to have far greater value in the future.
Home ownership is not for everyone. If you have less than perfect credit and/or lack sufficient provable income, you should probably keep renting until these two things improve. Also, if you think you may be moving out of the area in the near future, renting may be the better option. However, for those that are ready to settle into an area for a longer term, it probably makes more sense to buy a house. The first step is speaking to a mortgage broker to find out what you can qualify for. Once you have that information, you will be ready to start shopping for your ideal home.