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Renting a home provides you with greater flexibility, making it easy to pack up and go. Owning a home offers more stability. It also builds equity over time, which you can later access if you need it. There are clearly substantial differences between renting and owning. They also each have some fairly compelling perks, which can make the decision more challenging if you’re on the fence. Here’s what you need to know about renting vs. owning a home.
It’s not just about the house or apartment, it’s about the location itself.
Regardless of whether you rent or own, you also need to factor in the cost of living.
Don’t neglect your own happiness. Ultimately, it all boils down to where you feel happiest.
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Homeownership can be a joy, but it can also present new challenges. Here are some of the benefits and drawbacks to owning your own home.
When you own a home, you have a place that’s all yours. Unless you default on your mortgage, you’re not going to be forced to leave suddenly. There’s a sense of community and belonging when you own a home. There’s also a sense of pride.
Equity is the difference between what you can sell your home for and how much you owe on your mortgage. You accumulate value as you repay your mortgage. Equity also increases when home values rise—and, as history has shown us, they do rise over the years.
When you build up enough equity, you may be able to take a home equity loan or line of credit against it, which you can then use for home repairs.
Home values may naturally increase over time. Another way to increase the value of your house is to make improvements. While repairs and upgrades cost money, homeownership gives you the freedom to do what you want with the property. Certain improvements can increase its value significantly.
In many cases, you can deduct mortgage interest and property taxes from your federal and state income taxes, something a first-time homebuyer might not know. If you’ve just purchased the house, some closing costs and discount points may also be tax-deductible.
Many mortgages come with fixed interest rates, which means the rate never changes during the life of the loan. At the same time, your monthly payment never fluctuates, giving you greater predictability throughout your mortgage.
There are several upfront costs associated with homeownership, including the down payment, closing costs, home inspection, and other third-party fees. You also have homeowner’s insurance, private mortgage insurance (if you put less than 20% down), property taxes, and any necessary maintenance and repairs.
Speaking of maintenance and repairs, you get to choose how you to take care of your home. If something breaks, you need to pay for the parts and the labor to fix it. Your homeowner’s insurance may help defray some of the costs of certain issues (such as a tree falling on your roof), but, ultimately, it’s up to you to call someone to come out and get the work done.
While history shows us home values tend to rise, they can also fall. (Meaning if you decide to sell, there is always a chance you could get less than what you paid for it originally.) The price may also fall if you don’t maintain the property or make any improvements.
If you decide you want to move for any reason, doing so is harder. Not only do you have to look for a new place to live, but you also have to deal with the hassle and expense of selling your current one.
Homeownership allows you to build equity and comes with some great tax incentives, but it comes with some pretty hefty upfront costs and significant responsibility.
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