The old adage is that it is always better to own a house than to rent. The belief was that if you obtain a home mortgage to purchase your house, you will slowly build equity. Instead of wasting your money in rent, you get to live in the house and have a secure investment. The slump in the real estate market, drop in home values and rocky economic times have made many people ignore that old advice and consider renting in lieu of buying.
Owning a home comes with financial responsibilities. Beyond the purchase price, you will need to pay for insurance, maintenance and property taxes. As a tenant, you will probably want to pay for insurance for your belongings, but it will be significantly less than if you owned the home and needed to insure the entire property and your belongings. Your landlord is most often responsible for maintenance and upkeep, if you rent. Looking at those financial obligations, it appears that renting would be cheaper. As previously mentioned, though, as a renter you do not have any equity. Theoretically, the home mortgage payments you make each month as a homeowner (instead of renter) are building your investment via equity in the house. The claim that rent is wasted money is not exactly true, since you get to live in and enjoy the property. Your rent payments, however, are not put toward equity like they would be if they were mortgage payments.
If you are in a position to purchase a property with cash and the price is reasonable in the current market, buying your home will probably trump renting. But most consumers do not buy homes with cash and opt for a home mortgage instead. There are costs involved with having a home mortgage that do not necessarily give it a strong advantage over renting. The average 30 year home mortgage has the homeowner dedicating almost 80 percent of his monthly payment to interest. That is money he does not get back and it does not add to his equity. The percent allocated to interest decreases over the term of the home mortgage, but not significantly until the end of the term on the loan.
Determining whether you should buy or rent a property depends on your own financial situation. Analyze your budget and financial plan to determine what is best for you in the short and long term. In many markets right now, purchasing a property only for investment purposes is not beneficial financially. Over time, your earning potential with that same money invested elsewhere might be much better. If you plan to live in the property, however, weighing the costs and benefits of renting versus owning should be part of your calculations. If you are making a permanent move, ready to settle into a home that you own, and your short term and long term budget can handle the costs, buying might fit your needs better than renting.
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by: marciafreeman
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