If you’re a renter wondering whether it makes more sense to rent or buy then you may be interested to know that there are several advantages to home ownership. For starters, buying a home comes with the built-in advantage that each payment brings you one step closer to full ownership of the home. Compare this to renting, where no matter how many payments you make, the property will always belong to someone else. That means answering to someone else when it comes to things like basic modifications—e.g., adding a fence, fireplace, new tub, etc. But while these are all good reasons to buy instead of rent, the financial advantages are by far the most compelling.
Very often a renter will spend close to, or less than, the same amount on rent that a homeowner spends on a mortgage payment. On the surface, it seems the renter may in a better position to save money, however this does not take into consideration the savings realized through tax breaks. When the tax breaks that come with home ownership are taken into account, it is the homeowner and not the renter that stands to save far more.
Renting versus Buying: A Comparison Chart
- As the above chart demonstrates, the amount saved by buying compared to renting increases significantly over a 7-year period of time.
- In the beginning, rent is $800 monthly and goes up around 5 percent annually.
- The homeowner’s monthly mortgage payment on a $110,000 loan is a little higher at $1,000.
- Six years later, with all the annual increases in rent, the homeowner’s mortgage payment is actually less than the renter’s rent payment.
- When the tax savings are taken into account, the homeowner’s monthly mortgage payment is less than the renter’s payment after just 3 years.
Expenses Associated with Home Ownership
When you make you monthly rent payment your landlord reserves a portion of your payment to cover certain expenses, such as property taxes, hazard insurance, maintenance, repairs, upgrades, and in some cases, various utilities (gas, trash, electric, etc.).
Buying a home means that you are now responsible for these expenses. As such, it is important to factor any expenses that are not already wrapped into your mortgage payment into your monthly budget. Set these funds aside in a savings account so they’ll be there should the need arise. Owning and maintaining a home is kind of like taking care of your health. Your body will break down and develop health problems if you fail to take care of it. In the same way, your home will fall into a state of disrepair if you fail to maintain it over time.
Owning a home has been, and continues to be, the American dream. It’s a great feeling to come home and know that the place where you live is not just a place of residence, but a home that you own. Investing in a home that will appreciate over time is one of the most significant investments you can make. As such it is an investment in yourself and your future. With mortgage rates at historic lows, if you are able to qualify for a loan, then there is no better time than now to get the ball rolling.