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Rent or own? Weigh the cost benefit.

October 6, 2016

There continues to be an ongoing debate over the value of renting a home versus owning it. Renters know that they are spending money that they won’t recoup—it’s not easy writing that rent check every month and watching the funds fly away forever. Still, those who are financially capable of owning a home bide their time. Many of these hesitant homebuyer-hopefuls are just afraid of the commitment and the housing market. They saw homeowners go underwater on their mortgages when the housing bubble burst in 2008. But that fear is costing them now. Housing prices are on the rise while mortgage rates remain low (but not forever). The issues that contributed to the fragile housing loans in 2006 and 2007 (no-doc and low-doc) have been rectified, with stricter underwriting processes than ever, to ensure safe lending. Analysis paralysis on making the decision to purchase a home is costing renters too much right now. Just weigh the cost benefit to buy a home right now, with today’s rates, mortgages, and tax laws.

1. Investment. Real estate is a powerful investment because you can leverage the money you borrow to gain equity in your home. Home values are on the rise. How are your stocks doing??
2. The cost vs. value of your monthly payment. Rent is an expense, which means it delivers no return. You pay a fee. A mortgage payment is a contribution toward your investment because your home will gain in value.
3. Tax benefit. A homeowner can deduct mortgage interest, points on closing costs, and property tax. Energy-saving improvements are usually deductible. If you work from home, you can take a variety of home office deductions, which include a percentage of your utilities, mortgage, insurance, depreciation, and home repair for your dedicated home office space. Renters might be able to claim a small credit, depending on the state they live and work in.
4. Cost control. With a fixed rate mortgage, your payment stays the same through the life of the loan. Conversely, a landlord will likely increase your rent every year, based on inflation, the cost of repairs, etc. Buying a home is your best protection against inflation!

Housing construction is on the rise, because the demand is growing. Home sales are moving faster than they have in almost ten years, which means the inventory is getting smaller. Mortgage rates are certain to increase. The longer you wait to make the move to buy a new home, the more you will pay. Talk to a mortgage specialist to get pre-approved so you know what you can purchase. You might be pleasantly surprised at your buying power!