Should I Rent or Buy?

We all need a place to live and as you become a ‘’grown up’’, you may feel like it is high time you bought a house and put down some roots. Home ownership is one of the ultimate aspirations for many and renting is seen as throwing away money. You may think that no matter what your circumstances, you should be moving towards owning a house. But, like many things in life, there is no one best course of action that applies to everyone. If you are stuck on deciding whether you should be renting or buying at this moment in time, you need to consider many things to make the right choice for you.

Some Financial Considerations

When it comes to the financial aspect of buying vs. renting, there are lots of things to consider and I cannot possibly cover them all here, but would like to broach a few topics. Home ownership has many tax advantages. For example, in the United States, married couples can get up to 500,000 tax-free on the sale of their home while singles get 250,000. There are tax deductions for mortgage interest.

 But, it also has greater costs associated with it—no landlords footing the bill for a leaky roof or the myriad problems that can occur in a house or apartment. How you plan to finance your house is also a consideration. If you plan on getting the down payment from raiding your 401K, you are compromising your future security, which is likely defeating one of the major reasons you want to buy a house. You will have to pay tax and a penalty on top of that. Borrowing against it may not be a good idea either; if you decided to leave your company, that loan will likely be called in immediately. Plus, you are reducing the amount of money that can benefit from tax-deferred growth and market gains.

For some people, the idea of investing their money may be more appealing than building equity in a home. While there are no guarantees with any sort of investments, over the long-term, your stock portfolio will gain about 8 percent a year while housing prices typically follow inflation rates. If you are renting an apartment in New York City for 2,500 a month and decide to buy it, you may end up paying 3,500 a month when you throw in maintenance fees; if you are someone whose main concern is immediate cash available to you every month, this may not be appealing.

The bottom line here is that the heavily-ingrained idea that renting is throwing away money and buying a home is better for your financial situation overall is not always true. You really need to crunch your numbers and see what makes the most sense to you.

Things to Consider

Besides the pure finances of the decision, there are other things to consider as well. Simply being able to afford to buy a house does not mean it is the best course of action. Buying may be a good idea if you have stable income, plan on staying in your current location for at least 4 years, can put at least 5 percent down on the house and can afford closing costs, have money available for maintenance and repairs and have a reserve to protect you in the event of illness, job loss or any other situation where your income goes away or significantly declines. Renting might be the better option if your job or lifestyle calls for moving suddenly and/or frequently, like having a set budget where you do not have to worry about a major house repair appearing out of thin air, do not want to be bothered with the upkeep of a house or if you are in the process of rebuilding your credit or are experiencing financial difficulty. 

Kelli Cooper is a freelance writer who covers a range of topics related to real estate and home improvement. If you are thinking about buying a house, compare mortgage loans at Kanetix to help find the best rates. 

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