Should I Rent Or Buy A Home?

"Should I rent or buy a home" is one of the first and most important questions that potential homeowners should answer. There can be compelling arguments for each. Don’t get lost in the details.

What you need to do

• decide what is important to you
• make some predictions about the future
• understand the costs and benefits of the alternatives
• prepare to buy or rent

The heart of the financial decision to rent versus buy boils down to this question: “will you stay in a home you buy long enough to accrue enough the benefits of purchasing a home to compensate for the extra upfront costs?” The upfront costs of buying can be substantial and include your down payment, other mortgage closing costs and the cost of your time. However, if you buy a home you may reap financial benefits over the long term including:

• building equity - Equity is the value of your home that would remain after the debts (e.g. mortgage) associated with your property are paid. As you pay down the principal balance of your mortgage you will build equity if the value of your home remains stable and you do not have any other liens associated with the property. If the value of your home appreciates you will build equity even faster.
• mortgage interest tax deductions - If you itemize deductions, you may be able to deduct the interest you pay on your mortgage. Since the interest portion of your payment is much higher in the beginning you may enjoy significant tax deductions in the early years.
• protection against housing cost increases - The ability to remain in the same neighborhood is very important for families with school age children.

Since, renting represents a shorter term commitment and generally costs less in upfront costs than buying a house, it may be a better alternative if you are unable to make a long term commitment. For example, if you are concerned about your job security or future earnings, it may be best to rent until your situation stabilizes. Likewise, if there is a high probability that you will have to relocate in the near future then renting may be the best option for you.

Another question you should consider is whether you are ready to assume responsibility for a home as an owner. When you own a home you are free from restrictions imposed by a rental landlord, so you may paint for child's room whatever color you want. However, if the home requires maintenance then that responsibility is yours.

Rent vs Buy Calculator

There are so many factors to consider such as home price appreciation, future property tax rates, tax deductions, your earnings on investments, that most people need help in determining whether they should buy or rent. A rent vs buy calculator can help you make the decision.