Making the switch from renting to buying a home can be daunting. First time buyers are faced with several new financial considerations when owning a home, including:
- Paying a mortgage
- Property taxes
- Home maintenance costs
- Yard/pool upkeep
Though homeownership might seem expensive, it can make financial sense down the road. If you are unsure whether this transition is viable, consider these five advantages to buying a home over renting.
1) Long-Term Profits
Some people look at their rent payments like they are throwing away money each month. While this might sound a bit extreme, essentially that money is never going to be coming back to you. Mortgage payments should be viewed in a different light. Each payment helps bolster equity in the home and takes you one step closer to complete ownership.
If the home is well-maintained or renovated, then its value can significantly appreciate over time. Your neighborhood can also make a big difference in asking price. Well-maintained homes can then be sold for a significant profit. This, obviously, is not an option available for renters.
2) Homeowner Tax Breaks
Here’s one that might catch some long-term renters off guard: tax breaks for homeowners. Monthly interest payments for mortgages can be deducted from total taxed revenues. Since interest accounts for a large part of your payment, this provides more relief than renters may assume.
3) Borrowing Power
You can leverage the equity built up in your home to open up new lines of credit or take out a loan. This could give you the wiggle room needed to complete that important renovation or make a new investment.
Use precaution when taking out a loan on your home. People who choose to borrow against the whole amount could be left with payments that aren’t feasible. This can create an unfortunate scenario that leads to crushing debt and eventual foreclosure.
4) Buying Can Be Cheaper in the Long Run
Depending on applied mortgage rates, owning a home could be cheaper than paying rent over time. There are several factors which can impact this outcome, including:
- Length of time in the home
- Itemized deductions
- Applied tax bracket
Buy/Rent Calculators can offer first time homebuyers some valuable insight on how much they’ll save by owning their home. The New York Times provides an excellent calculation if you can provide the following:
- Current monthly rent
- Future home price
- Down payment
- Mortgage rate
- Yearly property taxes
5) You’re Free to Remodel
Owning a home means that you can make structural and aesthetic alterations as you see fit. Renters may not even be allowed to repaint a bathroom, let alone make any major renovations. They also face the threat of fines or other penalties if the residence is not left unaltered during their tenure.
People are faced with a variety of changing life circumstances which will push them to either buy or rent. Choosing to buy your next home is a serious decision, but it could also be the smartest one.