Why Renting May Not Be the Best Option For You
Buying a home isn’t for everyone, it’s a big responsibility and investment of time and money. However, over a few years’ time, buying a home can surpass its upfront investment, bring in wealth, and change your life for the better.
If you just aren’t ready to buy a home, that’s ok, but some of the things holding you back may be based on misconceptions. Let’s clear things up.
Common misconceptions about buying a home:
1. Buying a home ties you down
Buying a home is a longer-term commitment than renting. However, if you plan on staying in your rental property for more than a couple of years, buying could benefit you and your finances more than renting.
When purchasing a house, it’s wise to wait a full two years before selling again to avoid paying capital gains tax. Although, after two years, you can move wherever you want depending on how fast you can sell the house. You don’t even have to sell if you don’t want to. Many people will rent out their homes, becoming a landlord themselves to continue to increase the equity in their home before they sell.
Renting has its own restrictions and responsibilities. Many rental properties operate using a lease (a contract obligating you to pay rent for the entire term). The fact that you pay in monthly installments doesn’t change the fact that you owe the landlord the amount of the entire lease term. If you split early and break the lease, your landlord could sue you for the balance of the rent owed.
Regardless of whether you rent or own, you are going to face challenges. Weigh your options and go with the option that best suits you and your financial goals.
2. Renting costs less
If you were to purchase an affordable house in your price range, owning a home could be even cheaper than renting.
The above scenario is provided by Freddie Mac. It does not reflect current interest rates or pricing. Please contact a mortgage banker for more information. (Source: http://myhome.freddiemac.com/buy/rent-vs-buy.html)
The unique power of homeownership as an investment is that it appreciates based on the entire value of the home, not just the cash you’ve put down. Equity accumulates not only on what you’re able to pay, but also what you borrow.
When renting, you’re handing your money to a landlord who now gets to build equity on, but you see nothing in return when you move out. Building equity in your home is a wealth-building financial tool that can help reach your financial goals.
- Inflation: Unless you are in a rent-controlled building or neighborhood, rent is at risk of rising every year. With a fixed-rate mortgage, your mortgage payment can never change.
- Get a Cost Analysis: It’s important to do a cost analysis before deciding whether or not you can afford to purchase a house, the answer might surprise you! Click here to get a hold of one of our mortgage bankers!
3. Interest rates are too high; maybe you should wait
After years of record-low interest rates (hello, 3%!), the Fed is finally making some noticeable increases. In June 2018, the Federal Reserve (Fed) raised interest rates and also signaled that two more rate increases were on the way in the rest of 2018. Those rate increases could further constrict housing affordability. The longer potential buyers wait, the more expensive it will get to buy, rates are still considered very low
It may not make sense to sit and wait when you could lock in a great rate and enjoy the perks that come with watching your investment grow in value. The longer you wait to buy, the higher the chance that you could end up paying more in the end. In other words, if you want in on the American Dream, now might be the time.
4. Taxes are too expensive
Depending on your tax bracket, the amount you can write off in mortgage interest and other fees from the purchase of a home can make the purchase well worth it.
There is more to write off than just your mortgage interest, especially during your first year of homeownership. You may also be able to write off:
- Mortgage “points”
- Real Estate Taxes
- Mortgage Insurance premiums
- Energy credits
Contact your tax preparer to help you decide if homeownership is a solid tax benefit for you.
Whether you think it’s wiser for you to buy or rent a house, get a complimentary pre-approval from a trusted mortgage bankers. There’s no charge, your credit won’t be affected, and you’re not under contract to buy. There’s no risk to you, and you’ll finally have the answer to your questions about whether buying a home is a sound financial investment for your future.