For most people, having a house to live in is one of their biggest goals in life. They spend years saving up in order to be able to afford their very first home. However, that may not be in the cards for everyone. For some, renting may be the only realistic opportunity due to circumstances beyond their control.
Let’s dive into some of the pros and cons of both options. Hopefully, by the end, you will be able to make the best decision for your situation.
Home Buying vs Home Renting
When it comes to your finances and whether or not you can afford to buy your first home, there are several aspects for you to take into consideration.
Pros and Cons of Buying your next home
Pros of Buying your next home
Build up equity – When you buy a house and begin to pay off the mortgage loan you immediately start building equity in your home. As the home continues to grow in value, so does the equity.
Build up your credit history – These days your credit history is extremely important and the stronger your history the better off financially you will be. One of the major parts of your credit history is your ability to make your credit payment on time and in full each month. Having a home loan or mortgage can be a huge boost to your credit history.
Have better control over your surroundings – Everyone wants to feel safe in their surroundings and that includes where you and your family live. Buying your home gives you much better control over the property that surrounds the place you live.
Financial stability – Having a long-term loan or mortgage provides much more stability financially over a lease or rental agreement.
Tax deductions – You can deduct your home mortgage interest on the first $750,000 of mortgage debt (if you bought your home after December 16th, 2017). Other deductions you may also be able to take include mortgage points, Private Mortgage Insurance (PMI) or state and local tax (SALT) deductions.
Cons of Buying your next home
Upfront costs are considerably high – Unfortunately, when it comes to buying a home, you have to deal with substantial down payments, closing costs, and several other fees that are related to purchasing a home.
You are responsible for the upkeep of your home – As a home gets older, many of the internal and external systems tend to start breaking down and frequently fail. As the homeowner, you would be responsible for any expenses related to the upkeep.
Taxes and fees are your responsibility – Most municipalities assess property taxes on all homes within their boundaries and you would be responsible to ensure that you pay those taxes.
Pros and Cons of Renting your next home
Pros of Renting your next home
No long-term commitment is required – unlike with a mortgage that requires you to be committed to a 20 or 30-year term, rental agreements rarely exceed one year. Then you either go on a month to month or negotiate a new rental agreement.
Not responsible for any property maintenance – Since it is not your property you usually are not expected to do any of the usual maintenance. That usually falls directly on the shoulders of the landlord. This can usually be said about any repairs that may need to be done.
Zero unexpected repair costs – Since you don’t have to do any of the repairs yourself, you don’t have to worry about any of the unexpected repair costs that typically go along with homeownership.
No big downpayment – No need to spend years trying to save up enough money to afford a big downpayment. While you may be asked to come up with a security deposit, that rarely rises to the level of a 20% downpayment, which is typical with buying a home.
Cons of Renting your next home
No guarantee that the rent won’t increase – Since you don’t have a long-term commitment you will likely also not have much of a guarantee that you won’t see regular rent increases. While it won’t likely jump significantly month to month, year over year, you could see increases periodically.
Must rely on a landlord for maintenance or repairs – Depending on how dependable the landlord is, you are totally at the mercy of them. Most landlords do not allow a renter to do any of the repairs themself or to have them make the arrangements for the repairs to be done.
Zero benefits on your taxes – Since you are not paying a mortgage, you are not able to claim a part of the monthly rent that pay. Instead, your landlord collects the money from you, and they get to claim it on their taxes.
When weighing the pros and cons of buying a home versus renting it comes down to your specific circumstances. Some believe that buying a house would be the obvious choice. However, for others, the pros of renting would be much more prudent. We have worked with couples who choose to rent as convenience is important to them as they build their business or with retirees who like the flexibility of renting in different locations. Ultimately the decision is yours and you may experience both multiple times throughout your lives.
Adviso Wealth is dedicated to working with people just like you. We want to give you the clarity and confidence you need to achieve your personal and financial goals.
To learn more, visit advisowealth.com or email firstname.lastname@example.org