There are many reasons why someone may choose to rent vs. buy.  Perhaps they were just relocated due to work and don’t know the area. A usual strategy is to rent for a while before choosing where they want to put down roots. It might be that they only need a place for a short term before an expected life change. The most common reason, however, is financing.

It’s true that a monthly rent payment can be equal to or greater than paying a monthly mortgage (principal and interest) plus property taxes. There are, of course, a lot more expenses involved with home ownership: Homeowner’s insurance, potentially larger utility bills, repairs and maintenance and landscaping just to name a few. But the most glaring reason how finances may preclude home ownership is the need for a down-payment. With a conventional loan, anything less than 20% down requires Private Mortgage Insurance (PMI), which can add a sizeable amount to the monthly payment. And then there’s a few thousand dollars extra in closing costs. Even if you are able to get an FHA loan, you still need 3.5% of the purchase price as a down-payment plus closing costs. A VA loan, of course, is available for vets and no money down is available.

Benefits of Buying

When you actually own the house you live in, you gain quite a few benefits. For starters, every time you make a mortgage payment, and you pay into your principal, you are acquiring equity. Equity, by definition, is the portion of the house that you actually own (and do not owe anything on).  So between a down payment and monthly principal payments, over time, you are working towards full ownership without debt. Then hopefully, one day you can sell the house at a price higher than what you paid and actually get to keep the profit.

And let’s not forget Uncle Sam. Interest on a home loan and property taxes are both tax deductible. This can go a long way to reducing income and your overall tax liability. Of course, a tax professional should be consulted – but these potential tax advantages are not generally available when you rent.

Bottom Line

Only you can decide what works best for you and/or your family. But when you look at the financial pros and cons, it almost always works out better to own.

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