Deciding whether to rent or own a home is a choice that requires careful consideration. |
Our goal is to help you eliminate biases and make the right choice for your situation. With this in mind, below we discuss the unique benefits of renting and owning a home, go over the loan options that may be available to you, and provide an easy to use mortgage calculator.
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Benefits of Renting:
Lower Acquisition Cost
Unless you qualify for a mortgage loan with zero down and your closing costs are paid by the seller, you will need an average of 3.5% – 7% of the purchase price for your down payment and closing costs on an FHA mortgage, or 13% – 23% for a home secured through conventional financing. When you compare this to the cost of about 1-3 month’s rent payment, it’s obvious that renting a home makes financial sense in the short-term.
Lower Qualification Standards
While it’s worth noting that the FHA and other government insured mortgage programs have more flexible credit /qualifying guidelines than most traditional home loan programs, there is still far less invasive paperwork required to rent from an average landlord or property management company. Generally, proof of employment/income and decent credit history (or a good explanation for subpar credit) will be enough to rent a home.
Freedom to Move
When renting, it’s possible to quickly find a home through a reputable property management company, move in that weekend and leave a year later when the contract expires. Avoiding a long-term mortgage liability may be ideal for people who are new to a community, have careers that keep them on the go, or with children who may need to switch school districts.
If you plan on moving in the next 3-5 years, owning may be prohibitive for several reasons, including the equity you’ll need to gain in order to cover agent costs, buyer closing costs and transfer taxes. In conclusion, such short-term ownership may make it difficult to break even on your home.
If you plan on moving in the next 3-5 years, owning may be prohibitive for several reasons, including the equity you’ll need to gain in order to cover agent costs, buyer closing costs and transfer taxes. In conclusion, such short-term ownership may make it difficult to break even on your home.
Fewer Maintenance Costs
If something breaks at your rental, a simple call to the property management company will generally solve the issue in 48 hours or less. Additionally, renters are able to avoid expensive homeowner’s insurance, property taxes and interest rate adjustments.
Benefits of Owning:
Personalization
As long as you remain within the guidelines of your county / neighborhood homeowner’s association (HOA), you may be free to alter your home’s appearance in any way you like. You may also own domestic and exotic pets without paying additional deposits. While insignificant to some, these benefits are often of high priority for pet owners and those who enjoy landscaping, interior design, etc.
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Stability
Once you own a home, the only way you may be forced to move is if the bank forecloses on your property due to a default in your mortgage payments. Remaining in one neighborhood for several years will allow you and your family to establish lasting friendships and provide your children with the benefit of educational continuity.
Tax Benefits
The US government has created tax incentives that make it possible for many homeowners to exceed the standard yearly deduction. The following three components of your home mortgage may be tax deductible:
- Home Mortgage Interest
- Property Taxes
- Origination / Discount Points
Appreciation of Property
Historically, real estate has had a long-term, stable growth in value. In fact, median single-family existing-home sale prices have increased on average 5.2 percent each year from 1972 through 2014, according to the National Association of REALTORS®.
Savings
Monthly mortgage payments will help you work toward principal repayment of your loan. In addition, sellers generally take up to $250,000 ($500,000 for married couple) in gains without owing any federal income tax.
*Disclosure – Check with your CPA or Tax Attorney to verify your own unique filing scenario*
*Disclosure – Check with your CPA or Tax Attorney to verify your own unique filing scenario*
Increased Net Worth
Few factors have a greater impact on net worth than homeownership. In a study comparing renters and homeowners, the Federal Reserve Board of Consumer Finance found that the average net worth of renters was just $4,000 compared to a homeowner net worth of $184,400.
While tax advantages and earned equity potential are often cited as top reasons to own real estate by industry professionals, it’s important to remember that markets go through cycles. Nonetheless, owning real estate that appreciates more than the rate of inflation may help contribute to your overall investment portfolio if your maintenance and mortgage costs remain low. |
In the end whether to Rent or to Own depends on which benefits matter most to you. Contact your mortgage professional for more information. |