Buying Versus Renting A Home

Many people wrestle with the choice of renting or buying a home. Whether you are currently renting and considering a purchase, or are moving into the area and trying to make an informed decision, please read on. There are some questions that should be taken into consideration.

  • How’s my credit? Lenders generally determine the interest rate and terms of your mortgage based on your credit score and history. Regardless of whether or not you are dealing in a buyers’ market, a clean credit report and decent down-payment are essential if you want to get the best deal possible on a home mortgage. If your credit score is low, wait to buy and choose to rent instead, until you are able to accrue a more stable financial situation.
  • Am I ready to own a home? Despite the great condition your house may be in when it is first purchased, there will always be additional costs to ownership, compared to renting, for maintenance, improvements, and general up-keep.

    As opposed to renting, you are your own landlord when a pipe bursts, or when lightning strikes, while owning a home. It is entirely up to you to maintain both the grounds and the structure while you live in your own home, so do not buy a home unless you are realistic about the cost of up-keep.

  • Do the benefits of a tax break outweigh the cost of ownership? Keeping in mind the additional costs of owning a home, you must also consider that when you do purchase a house, you also get a tax break. When you pay income taxes, you are allowed to deduct not only the mortgage interest, but also real estate taxes.

    If, for example, you were in the 28% tax bracket and paid monthly on a $150,000 loan, you could receive a credit that would reduce your annual income taxes by about $3,600. That’s $300 per month! Adversely, if you rent you do not have this particular advantage.

  • How long will I live in the area? If you plan to live here less than two years, then renting would be your best choice. Current tax laws permit a homeowner to forego paying taxes on profit made from the selling of a home if the owner has lived there for a minimum of two years (capped at a capital gain of $250,000 profit for a single person, and $500,000 for a married couple).
  • Is it necessary for me to hire a realtor? If you have determined that you will be staying in the area for a while, it will be important to consider the location that will best suit your needs. If you are new to the area, you would benefit greatly from the experience of a seasoned realtor who would be able to steer you in the right direction on your hunt for a home.

    Consulting a realtor as soon as possible after relocation will also benefit you in the event that you choose to rent first before buying. Often, when someone chooses to rent before they buy, they become accustomed to the area they rent in, consequently making it more difficult to buy the home they actually want in another area because their “niche” was already carved out for them.

    An example of this would be that you became tied to the area you first rented in because your kids started school in that district, where lines were drawn out, and you didn’t want to pull up stakes and move to another area where the kids would have to change schools.

    The spectrum of homes to own then becomes less broad and focused in one area only. In short, a realtor is not always necessary, but is highly beneficial to you.