Is it wiser to rent a home or to take out a mortgage and purchase one? In the past, conventional wisdom has held that buying is more sound financial decision. In today’s market, however, there are some cases where you might actually come out ahead renting your home. When making the rent versus buy decision, there are some factors you should take into account:
Length of Time in Home
Before you buy, think about how long you plan to stay in the house or condo you’re purchasing. Taking out a new mortgage has a lot of upfront costs including a hefty down payment and loan origination fees as well as other closing costs. If you will only be living in the house for a few years, you won’t build enough equity to make back your initial investment. Renting is probably smarter. If you want to see how renting compares with different mortgage deals, check one of the free online renting vs. buying calculators.
Rental Increases
If your landlord raises the rent on your apartment by several percent every year, it may make more sense to buy. Again, a financial calculator can help you explore this.
House Price Increases
Before you purchase a house, make sure you know the overall trend of house values in the neighborhood. If the houses are losing value, you’re more likely to come out ahead by renting. If the houses are gaining value quickly, it may be a good investment to buy.
Tax Advantages
When you are ready to sell your house, you will not be charged taxes on the income unless it is over $500,000 ($250,000 for a single person).
Repair Costs
When you’re renting, the landlord has to foot the bill to fix the plumbing or repair the roof. Once you buy, that responsibility shifts to you. If you’re buying an older house or a fixer-upper, make sure to take repair costs into account when you’re making the rental/buy decision.
There is no simple answer to the question of renting vs. buying. You must weigh all the different factors and make a decision that is appropriate for your unique circumstances.