Most people ask themselves this question at some point in life. Renting is often seen as a less expensive option since when renting you don’t pay a down payment, loan closing costs or home repairs. But although you might spend less out-of-pocket money renting a home, owning can be financially advantageous overtime.
Understanding the benefits of buying can help you decide whether to meet with a mortgage lender and apply for a loan.
Renting is convenient and suitable for some lifestyles, but it’s also a never-ending monthly expense. And unfortunately, permanent renters don’t get a return on their monthly rent payment. Homeownership, on the other hand, can result in a handsome return on investment. One of the greatest rewards of buying a property is the opportunity to build home equity and increase your net worth. Each monthly mortgage payment decreases your loan balance, placing you a step closer to owning your property free and clear.
Your rent may be affordable today, but it may not be the same amount next year or the year after. Rent cost is unpredictable year-to-year — it is not uncommon for apartment landlords to raise rent prices annually to keep pace with the rental market. Average yearly rate increases vary from city to city and unfortunately unless you live in a rent-controlled apartment, there is no cap or limit on the amount your landlord can increase the monthly rent. As a result, your rent might increase as little as 2% or 3% a year, or as much as 8% or 9% per year. This makes it difficult to budget and plan for the future.
A fixed-rate mortgage, however, allows for predictable home loan payments. For that reason, you’ll never worry about another rent hike. Since a fixed interest rate doesn’t change, your home loan payment remains roughly the same from year-to-year (although you could experience minor fluctuations due to price changes for homeowner’s insurance or property taxes).
Unfortunately, renters do not benefit from the same tax deductions as homeowners. Most people look for ways to lower their taxable income, which can trigger a larger tax refund or a smaller tax bill. When owning a home, you are eligible to write off portions of your total mortgage payment, such as mortgage interest, private mortgage insurance, property taxes. On the year you purchase your home, your loan origination fees are tax-deductible. In addition, energy-efficient improvements may also be tax-deductible. Consult a tax professional for information on eligible tax deductions and credits.
Another benefit of owning a home is that no one can make you leave the property, as long as you keep up with your monthly payments, which include the mortgage, and if escrowed, the home owner’s insurance and property taxes. Apartment renters have rights, in which case an apartment landlord cannot terminate the leases of good tenants who pay their rent on time. This is not the case when you rent from a private landlord. Since you don’t own the property, a private landlord can choose not to renew your lease and ask you to vacate the property. This might happen if the landlord decides to sell the property, move into the home, or rent the house to someone else. Regardless of the reason, renting from a private landlord indicates no true stability. There’s always the possibility that you’ll have to depart the home before you’re prepared.
Not only can some landlords ask you to vacate a property, as a renter you’re also limited in how you customize the space. Some landlords include information in lease agreements restricting the use of paint, nailing holes in the wall, and making other cosmetic changes. On that account, it can feel as if you are a visitor in your home. Buying gives you complete power to create a space that is designed and decorated to your taste.
*Atlantic Coast Mortgage does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
