Everyone deserves to have a roof over their heads. However, choosing how to obtain that isn’t always straightforward. Renting vs. buying a home is always a hot topic of debate given that there are both advantages and disadvantages to both options. If you currently rent your home, you may be wondering about whether to take the plunge into homeownership. After all, chances are that if you have friends who have already secured their first mortgages and are the proud owners of a pile of bricks and mortar of their very own, they are making it sound easy. And let’s face it, you are probably spending way more on renting that you feel entirely comfortable with. The economic downturn of 2008 combined with rising student debts and stagnant wages means that far fewer people have been in a position where they can buy a home, and this has pushed rental prices up significantly over the last decade. While in the eyes of many, renting may be perceived as being more affordable, in actual fact rental costs can easily be as much, or even more than you would pay on a mortgage where, at the very least, you own an asset at the end of the process.
Here are three reasons why buying a home might make more sense than renting.
Unsurprisingly, the biggest reason why buying your own home makes sense is that it gives you the opportunity to put your money towards something that you actually own at the end of the term. Sure, some of your mortgage payments will be interest, and that goes directly to your lender, but assuming you aren’t on an interest-only mortgage, the bulk of your monthly payments will go towards chipping away at the principal cost of your home. The more mortgage payments you make, the more of your house you will own and the greater your personal assets are. This means that in the future you will have a nest egg of money that you can use towards whatever you decide – whether you decide to sell your home and travel the world, downsize and put the surplus towards a new business or put a larger down payment on your next home purchase.
You may have heard that there are tax benefits associated with homeownership. This is correct and for many people, it is one of the biggest side perks of owning their own home. Some homeowners get to deduct as much as 100% of the interest that they pay on their mortgage – your tax advisor will be able to give you more information.
In addition to this, the U.S. government also regularly brings in other schemes which further reduce the tax paid by people who own their property, such as the Renewable Energy Tax Credit. This scheme means that if your property has equipment that uses renewable energy such as wind or solar, you could get back as much as 30% of the installation costs as well as reaping the cost-savings on your utilities.
As a renter you can’t make such adaptations to the energy sources serving your home, meaning you could be stuck with high bills as well as expensive rent.
For many renters, the biggest challenge of owning their own home is saving up enough for a down payment on their mortgage. Most lenders ask for between 10% and 20% as a down payment. This can seem like an impossible sum to save when you are covering the cost of high rent each month. Fortunately, there are some alternatives to explore, particularly if you are a first-time buyer. You may be eligible to take up to $10,000 out of your IRA without penalties to put towards a house purchase. Alternatively, you may be able to look at loans from the Federal Housing Administration and U.S. Department of Agriculture and the Department of Veteran Affairs – both of which require extremely low or even no down payment whatsoever. Shop around and you will be surprised at what help you could be eligible for.
For more advice on buying a home and the financing options available to you, please don’t hesitate to get in contact with our experienced and knowledgeable team.