Renting vs. Buying a Home.

There’s no question that buying a house makes sense for some folks, but mainly for non-financial reasons. 

Owning a home gives you stability (you’re not at the mercy of a landlord) and freedom (you can do what you want with the place). 

Here are a few points to consider when deciding whether homeownership or renting makes better sense for you.

Reasons to rent

• Flexibility. Renting allows you to explore an area before making the longer-term commitment to homeownership. Unless you are certain about a specific neighborhood, renting allows time for research and discovery.
• Career uncertainty. If you think you might need to move in the near future, or are mulling job changes that span several areas of town or are located elsewhere in the country, you might want to rent. Buying ties you down to a greater extent.
• Income uncertainty. If you expect a pay hike or cut in the near future, that can change your borrowing ability as well as impact your ability to pay a mortgage.
• Bad credit. Creating a history of on-time rental payments can help you build the sort of credit you’ll need to qualify for a mortgage.
• No maintenance expenses. When a pipe leaks, you don't head to the store; you head for the telephone and call the landlord.
• Utilities (sometimes) included. In some instances, the landlord may pay for many utilities such as water, sewer, garbage, and, in some cases, even heat and hot water.

But there is a downside, too: You may have no control over the fluctuation of your rent, a big-budget item that can change often. Long-term budgeting becomes more difficult.

Reasons to buy

• Equity. When you pay rent, you are paying your landlord’s mortgage or adding equity to his or her bank account. However, when you have a home mortgage, you increase your degree of ownership in your home with every payment. A general rule is that if you intend to stay in your property for at least five to seven years, the costs of purchasing the home are more likely to be offset by accrued equity and increased housing value. In the event that equity in the home grows to more than a 20-to-80 percent loan-to-value ratio, you will be able to borrow against your equity in the home. This can be cautiously used should you need capital to pay for major purchases. If interest rates drop, you can refinance your mortgage at more favorable rates, or, once you've paid the entire mortgage off, borrow against the equity in your home to fund major purchases such as a second home or your child's education.
• Tax deductions. You can deduct mortgage interest as well as your property taxes. Uncle Sam doesn't give renters this bonus. Not only that, but if you meet certain requirements the IRS won't apply a "capital gains" tax on your profits from the sale of your home. You can keep the first $250,000 in profit you make when selling the home if you're single, or the first $500,000 if married. In addition, those who work from home may be eligible to take deductions for their home office and portions of utilities.
• Creative control. You like dozens of pictures on the wall? Well, hammer away -- they are your walls now. Go ahead and paint them mango! Wish you had another room? Go ahead and add one.
• Maintenance choices. If you live in a house, you can decide how to approach maintenance, either doing it yourself or picking your own contractor. If you live in a condominium or homeowners' association, you may pay a monthly fee to have maintenance work covered by the association's contractors.

While a home is a good investment -- and let's face it, you have to live somewhere -- many financial experts caution against purchasing a home simply as an investment. 

Important Questions to Consider

1. How Long Do You Expect to Live There?

While buying a home may be one of the most expensive investments you’ll ever make, it also requires a major emotional investment. The days of buying a home and selling it for a profit within a short period of time are pretty much over except for the most savvy house flippers. If you are considering buying a home, be prepared to stay in it for five to seven years or longer in order to recoup the cost of buying, to survive a questionable market, and to build equity. If you can’t make that long-term commitment, you’re probably not ready for the responsibility of homeownership.

2. What Are the Costs of Buying?

A big factor in the decision to buy or own is your local housing market. Check online to get an estimate of rental costs and purchase costs for your area, and check with a realtor to learn about neighborhoods and homes you might want to purchase. Most mortgage lenders are happy to work with first-time buyers to explain the mortgage process and pre-qualify you so you know how much you can borrow. But be careful to consider how much you want to spend on your housing and whether you are ready to make the long-term commitment.

3. What Are Your Future Plans?

While no one really knows exactly where they will be in five years, you should think carefully about your goals for your career and for your personal life. If you hope to climb your career ladder – but may need to relocate to do so – then renting may be the best option, unless you are certain you want to own an investment property.

If you are single and hope to be married, you need to think about your home purchase in terms of whether it will be comfortable for two people or a small family, or whether you will want to sell it or rent it out in a few years. If you are married and hope to start a family, and thereby intend for one spouse to work less or stop working altogether, make sure your housing budget can accommodate a reduction in income. Lastly, if you have an avocation that you love but costs money, such as golfing or skiing, make sure you keep that in mind when you create your housing budget.

4. Do You Have the Ability to Finance a Home Purchase?

If you’re considering buying a home, your first step should be to meet with a lender to determine whether you qualify for a mortgage and, if so, how much you can borrow. Your ability to qualify depends on several major factors:

Call my Team for a "Free" Prequalification for a Home Loan: 404-358-2034