The debate on whether one should buy a home versus renting a home seems to be as old as time. When deciding which route is best there are practical considerations to be made. Find out below if you are really throwing away your money by renting or if homeownership is the best option.

The Argument for Renting

For many, renting is a great option that allows for mobility. If you know you will not be in a given place for long, renting allows for short term living. Those who move around frequently for work or have been thinking about a change of pace in a new city find renting affords the flexibility they need.

Many people prefer maintenance free lifestyles. While renting it is not incumbent upon the renter to make repairs or perform maintenance to the property. Those tasks are usually fulfilled by the owner. Without these additional responsibilities renters rarely need to prepare financially for a water leak or roof repair.

Having a steady monthly cost is another benefit renters take advantage of. For the term of your lease you know exactly what you will pay each month without the fluctuation in costs associated with homeownership.

The Downside of Renting

A person who needs mobility and steady costs while living maintenance free can benefit from renting, however there are a few drawbacks that should be considered.

Landlords typically increase the amount of rent at the renewal of a lease. Sometimes this increase can force a renter to have to incur the additional costs of moving. Not to mention the time involved in finding your next living space.

We have covered the perk of not being responsible for repairs or maintenance. The flip side of this is as a renter you are dependent on the landlord to make all repairs in a timely manner. This can be difficult to accomplish if your landlord isn’t in any rush and depending on where you live there may not be much recourse for you if they do not.

Homeownership

Homeownership, the backbone of the American dream, has long been seen as a stable, wealth building tool with several benefits. It could also very well be the largest financial decision of your life. Those who have steady income, meet the credit requirements and have some money saved are encouraged to buy a home. You may be asking what the big fuss is about so let’s dive deep into the pros and cons of owning a home.

Why Buy A Home

The most touted benefit of owning a home is the wealth homeownership can generate. The combination of paying down your mortgage while the property appreciates in value increases the amount of equity the owner has over time. That equity has a direct impact on your net worth. In the Federal Reserve’s 2016 Survey of Consumer Finances it found that homeowners net worth are 46% higher than those who rent.

(Source: FEDERAL RESERVE 2016 SURVEY OF CONSUMER FINANCES)

The mortgage interest deduction has been a staple of the benefits of homeownership. Owners have long been able to deduct interest payments each year at tax time. Recently with the new tax law in effect you would need to itemize your deductions to take advantage of this benefit. Some homeowners have found that the standard deduction is now greater than if they were to itemize. This is going to be unique to each person's specific situation so it is encouraged that you seek professional advice when determining which is better for you.

There are abstract benefits to ownership as well. There is great value in feeling a sense of community in the neighborhood or area that you purchase in. Additionally, families and single professionals alike enjoy the stability and pride of ownership buying a home provides.

When Buying Isn’t Right

The benefits of owning a home are plentiful so why would someone choose to rent?

Qualifying for a home loan can be a stringent process. Potential buyers who may not have steady income, amassed a nest egg yet or have some credit challenges to overcome will have to rent until they can qualify for a mortgage.

The longer you stay in your home the more likely your home is to appreciate and your equity to grow. Conversely, someone who lives a more transient lifestyle should think carefully before buying. Most mortgages front-load the interest meaning you pay the most interest in the first several years of payment. If you buy a home and find yourself moving soon after you most likely will not benefit from appreciation and can spend any equity earned in the cost of the sale.

Renting Vs. Buying

• Renting provides flexibility, steady monthly costs and zero maintenance.
• Buying a home gives the owner access to financial gains through appreciation and equity, tax benefits, a stable living environment, sense of community and pride of ownership.
• The value found in renting versus buying can ultimately come down to a lifestyle choice. While the benefits of owning can lead to better financial stability over the long run; renting can be the best option for someone who prefers to move often and does not want to incur the cost of maintenance.

According to Zillow, here are the reasons to buy vs. rent:

Reasons to Buy

Equity. This is the difference between the market value of your home and the amount still owed on the mortgage. As you make your mortgage payments and reduce the loan principal, you may increase your equity in your home.

Tax deductions. You may be able to deduct mortgage interest as well as property taxes from your income taxes. Talk to your tax professional for more information.

Creative control. Paint your walls bright orange if you want. Rentals rarely allow redecorating or remodeling.

Maintenance choices. Do it yourself or call your own contractor. An exception is a condo or homeowners association, where you might have maintenance covered.

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Reasons to Rent

Flexibility. Renting offers an easy way to test an area’s safety, amenities and ease of commute.

Career uncertainty. If job stability is a concern, renting may be a better option since buying is typically a longer-term commitment.

Smaller cash outlay. Renting usually requires first and last months’ rent and a security deposit. Buying requires tens of thousands of dollars down.

Bad credit. Creating a history of on-time rental payments may raise your credit score and help you qualify for a mortgage that may better suit your needs.

No maintenance. There’s typically no need to worry about repairs – just report the problem to the landlord.  Incidentals. Sometimes utilities such as water, sewage or garbage are included in the rent price. Plus, many rental complexes include their own pool and gym.

Whether it makes more sense to rent or buy a home is something only you can decide, based on your lifestyle, location and personal preferences.

The bottom line is when making the decision to rent or buy there are many factors to consider. Ultimately, most people can benefit greatly from home ownership but it is a long term commitment one should be prepared for.