Homeworks academic service


The pros and cons of renting a house vversus buying a home

Before making the decision to invest in real estate, consider the following advantages and disadvantages to see what makes the most sense for you financially, as well as what works best with your current lifestyle.

Renting versus Buying: Which Option is Best for Me?

The advantages of homeownership Homeownership can be a wonderful, financially advantageous thing for many reasons, including those below: Paying a mortgage builds equity: We've all heard it before: Paying rent is a wasted expense that doesn't go toward building our financial wellness.

Rent is a payment that goes to the homeowners in exchange for using their property as your home. We don't build any ownership in where we live, and when we stop paying rent, we move on to the next apartment as if nothing ever happened. When you buy a home, your mortgage payment is going toward principal and interest. Your down payment plus the amount of principal you have paid off in your mortgage equal how much ownership you have in your home. Your ownership, also called equity, is an asset.

Advantages of Buying

This is something that is yours, and something that you have the right to sell. While the interest portion of your payment doesn't go toward increasing your ownership, your principal payments do.

  • No one can kick you out or raise your rent, and you can make changes and improvements as you see fit;
  • The market and home prices fluctuate;
  • Advantages of Renting The following are some of advantages of renting that the consumer may want to consider;
  • We don't build any ownership in where we live, and when we stop paying rent, we move on to the next apartment as if nothing ever happened.

Monthly mortgage payments go toward purchasing your home. Any improvements you make are truly yours: When you rent, any improvements go back to the homeowner, and you only get to enjoy them while you are renting their home. As a homeowner, you increase the value of your property with any improvements you make to the space. Homeowners benefit when it comes to taxes: There are two types of mortgage points: Origination points and discount points. Origination points compensate lenders, are not always required, are often negotiable and are not tax deductible.

Discount points on the other hand, are prepaid interest, can lower your overall mortgage payment and are tax deductible. Each point you purchase typically lowers your mortgage interest rate by 0.

Going forward, you can deduct the interest you pay on your mortgage from your taxable income. This can equal huge savings, especially early on in your mortgage when interest makes up the bulk of the payments. While you might not be excited about paying property taxes on your new home, you also are able to deduct these as well.

Homeowners have a more stable living situation There are also incredible feelings of independence and freedom that come with homeownership.

You are living in your own home, have control over it and you can do as you please. No one can kick you out or raise your rent, and you can make changes and improvements as you see fit. Sarah and Scott Damassawho married in 2013, recently purchased a home in the Bay Area and their experience echoes this sentiment. We also want to raise a family, and the system in San Francisco where we rented was a lottery, so there was no guarantee our future child ren would go to a good school.

If you lose your job, you can't just switch to a less expensive apartment like you could when renting. You have to make your mortgage payment, or you will default on the loan. Defaulting simply means you aren't making your payments when you should, and after a certain period of time, the lender has the right to take your home from you.

Homeowners are responsible for repairs and maintenance: You also are responsible for anything that breaks.

When renting, the landlord is responsible for a broken air conditioner or toilet. When you own the home, you have to pay for and fix things yourself. The Damassas cannot stress the added costs of home ownership enough. These types of repairs can be very expensive, and it's recommended that you save up for them so that in the case of a broken appliance or major repair, you can pay for it without taking out more debt on your home or getting into credit card debt.

Property taxes are your responsibility: When it comes to actually purchasing a home, there may be additional costs separate from its price tag. Home inspection, bank origination fees and real estate transfer taxes. It's hard when you're saving for a really big purchase because you want to see that money go towards the exciting stuff, like more square footage or a nicer building, but you need to leave a buffer for making everything happen.

My advice is to save even more than you thought you could ever need — if you have too much left over, you can use it to reward yourself with new furniture! Consider your current financial situation as well as your lifestyle to decide if it makes sense for you.

Can you afford to make a down payment, pay a monthly mortgage and pay for any items that break or need repairs in your home? Do you plan to stay in the same place for the next few years? If not, can you sublet or lease out the apartment? These are some of the questions to consider before making the leap from renting to homeownership. For info on whether an investment property might be right for you, see this helpful video: The thoughts, ideas and opinions expressed are not intended as tax advice.

Please consult your tax advisor for advice regarding your situation.