Do you feel like you are throwing money out the window when you rent? Do you think that buying a home is always the best choice?
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While there certainly are
benefits to owning a home, there are also downsides. If you aren’t in the right place financially, you may be better off renting rather than buying.
Keep reading to learn how to tell if buying a home is better than renting in your situation.
The Advantages of Buying a Home
Buying a home provides you with several benefits including:
You can do what you want with the home, to a point. If you rent, you have to answer to the landlord and you usually can’t make any permanent changes to a home. If you own the home, you can change the look or function of the home as long as you have the approval of your city or county, if necessary.
You gain equity in the home. Even if you only put a little money down on the home, you’ll eventually see a return on your investment. Real estate can appreciate. If you combine that with the payments you make towards the loan’s principal, you will gain equity. If you sell the home, you will be able to keep the difference between the sales price and the amount you owe on the home.
You may get some tax benefits. Even though the tax laws have changed for 2018, you still may be able to deduct some of your expenses that come with owning a home including the interest you pay on your mortgage.
The Disadvantages of Buying a Home
There are also some distinct disadvantages of buying a home:
You may have to pay a lot of money upfront. When you buy a home, you have to
make a down payment plus pay the closing costs. You may also have to set up an escrow account to cover the real estate taxes and insurance on the home. The amount you need to close on the loan could be high, making it hard to afford or completely depleting your savings account.
You are stuck in the home. You can’t just pick up and move when you feel like it. Once you own a home, it’s yours. You have to keep paying the mortgage even if you don’t want to live there anymore. The only way out of the mortgage is to pay it off completely, which would require you to sell the home. Selling a home could take several months or longer, depending on the market.
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You are responsible for the maintenance and repairs. If anything breaks or needs replacing, you have to take care of it and pay for it yourself. There isn’t anyone that is going to come and do it for you. The only exception is if you buy a condo. The condo’s association will handle the exterior maintenance and repairs.
The Advantages of Renting a Home
Renting a home or condo also has some benefits:
You can pick up and leave at the end of your lease. Many landlords require you to sign a yearly lease, which means you could move every 12 months if you wanted. You don’t have to worry about paying off any debt or selling the home. You simply don’t renew your lease and you can move.
You can live with just about anyone without worrying about ownership. Buying a home with anyone but your spouse can get complicated. If you want to live with friends, renting is usually the better option. There isn’t any ownership or loans to worry about. You just have to make sure everyone pays their rent.
You don’t have to worry about maintenance and repairs. If something breaks, stops working, or needs replacement, you can call your landlord who will be responsible for fixing the issue for you.
The Disadvantages of Renting a Home
Renting a home also has some downsides that you should understand:
You don’t have any ownership in the property. Your rent helps the landlord gain equity in the property; you gain nothing. When you move you don’t see any type of return on your investment. You pick up and walk away with whatever you brought to the home.
You may have to find somewhere to live every year or so. The landlord ultimately decides what to do with the property. If he/she decides to sell it, you may find yourself needing somewhere to live at the end of your lease.
The cost of rent often rises in cost. Your mortgage payment never changes (unless you take an
adjustable rate mortgage). Rent can change, and it usually does every year. This could make it harder to afford where you are living if you already struggle to make ends meet.
As you can see, both sides have advantages and disadvantages. If you have the money to put down on a home and pay the closing costs, buying may be a better option. You can gain equity in the home and even sell it down the road if you want to move. If putting money down on the home or being tied down to one location is too much, though, renting may be the better option for you.
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