So, let's assume you are a renter who is considering a first time home purchase and you are weighing the pros and cons of renting vs. buying. You've probably heard the commonly held belief that it's better to buy a house and build equity than it is to throw your money away on rent. But in todays housing market - is buying a better choice than renting?
The answer is maybe, but not always. In certain scenarios, you might be better off staying in your rental. If there's a possibility that you may move within the next 5 years, or if your rent is way below the market, you might be better off investing in another vehicle or a certificate of deposit (CD) than real estate. For example, a CD would earn interest regardless of whether the real estate market fluctuates or not and with a CD you could use the principal later on to make a down payment if you decide to buy a home later in the future.
Renting vs. buying is not always a fair comparison. When you purchase a home, there are other significant one-time and continuing costs, such as closing costs, inspections, property taxes, insurance, maintenance fees and in some cases, private mortgage insurance or PMI. These throwaway expenses can be significant and need to be factored into any cost analysis. There are many calculators online which can help you determine the advantages of buying vs. renting.
However, there are advantages to buying that are also worth considering. If you stay in your home for 15 or 30 years paying a fixed rate loan, your monthly payment will be locked in for the life of your loan, whereas your rent can be raised as long as the market will bear it. You can also write off any mortgage interest on your income taxes, which could result in significant savings. Also, as mentioned before, you build equity in your home over time and you could borrow against it with a second mortgage or home equity line of credit.
Be sure to make a thorough analysis of your monthly payments and know how much you can afford to put down on a house, before committing to any course of action.
