Have you ever heard or read about the advantages of owning your own home compared to renting? Sure you have. Maybe you saw an article online or perhaps a real estate agent is trying to get you off the fence and buy your first home. But buying your first home, while exciting, can be a bewildering process. You can search the Internet for any variety of “rent vs. buy” calculators or read prose by accountants or other financial professionals touting the litany of advantages that owning a home brings.
But really, renting or owning is a very personal decision. And sometimes too much advice and too many calculators only confuse the process. How do you know if buying is truly right for you?
From a purely financial perspective, compare what you’re paying in rent right now with what you might have for a monthly mortgage payment. For example, if you’re paying $1,100 per month in rent, what kind of house could you buy with a $1,100 per month mortgage? Using a 30 year fixed rate at 3.25 percent today, the result is an approximate $200,000 loan. All you need to do is compare the place you’re currently renting with properties selling for around $200,000. With a 5.00 percent down payment, that’s a sales price of around $210,000. Do you like what you see?
Yet another important consideration regarding renting vs. owning is the impact on your income tax liability. Mortgage interest is deductible for those who itemize on their returns. Using this same $200,000 loan amount and 3.25 percent rate, for the first year of ownership, you can deduct more than $6,000 from your taxable income. When paying rent, you get no income tax deduction.
While there is no doubt there are financial advantages when owning compared to buying, what’s really important is something a bit more intangible. The home belongs to you and no one else; you’re not paying someone else’s mortgage for them. Owning your own place completely changes your perspective on where you live. It’s no longer simply an address. It’s your home. Buying your first home is something you achieved on your own; you earned it. And that’s really the best reason to own instead of rent after all.