Buying a home is a big decision and brings with it, solid responsibilities. It is also a great way to build wealth for yourself and for
future generations. It also means that you can no longer ask the landlord to fix your refrigerator.
Renting
Renting has its advantages as follows:
You can move from place to place without
the hassle of having to sell your current domicle.
You are not responsible for maintenance repairs. If the refrigerator breaks,
you simply call your landlord and voila - things are back on track.
You may have amenities such as a pool or tennis court available to you.
Your monthly costs are more "fixed," since you are not expected to pay for
emergencies associated with maintenance.
You do not need to save for years to rent as you do with a home.
Overall your responsibilities are low in comparison to owning a home.
The disadvantages of renting include:
Having nothing to show for the money that you've spent on rent after your lease term is over. Sure you had a place to live but you accrued no equity.
You do not get any special tax incentives.
There may be restrictions on pet ownership, children, etc.
Your rent will also go up.
You lack the sense of community that owning a home brings.
Buying
Buying a home is the American dream. The pride and joy that goes along with
homeownership, trumps the responsibilities associated with homeownership
anyday, in my book.
The advantages of owning a home include:
Homeownership encourages you to be more financially disciplined. You know that you need to make your mortgage payments at
the end of every month. You also know that you have to save for a rainy day and thus you stock away a little extra at the end of month.
Homeowners tend to have better credit scores (because of what is stated above) and therefore have access to a wide array of loans, credit cards,
etc. They can continue to build their wealth by using home equity loans to buy investment propety or to improve their existing home.
Your home should not be considered as your retirement plan, but a person who owns a home and builds equity in that home, has a nestegg to fall back on in
hard times.
The interest on your monthly mortgage is tax deductible and can save you thousands on your taxes.
Homeowners have a sense of pride and a sense of community. They want their children to go to good schools and they care about what goes on in their neighborhood.
This leads to a protective environment that tends to be safer
.
The disadvantages to buying a home are:
You need to have some cash on hand for emergencies.
You also need to save money for a downpayment, although this criteria can be circumvented
through creative mortgage programs such as piggyback loans. In a traditional home buying process, you put down 20% of the purchase price. If you have good credit, you can get two loans: one for 80%
of the home price and one for 20% of the home price. It allows you to avoid private mortgage insurance (PMI), which is required, if you cannot put down 20% as a downpayment.
Whether you choose to rent or buy, make the decision based on whether, it
meets your current financial and/or emotional needs.