Renting Versus Buying A Home

In the long term, financially speaking, it’s usually better to buy a home than to rent – but not always. It’s an important decision based on fairly complicated guidelines, but these rules of thumb can help make sense of it all.

Better to rent. A home-seeker should consider renting instead of buying if he or she matches certain criteria. For instance, if the person has a job that requires frequent relocating – say, every two or three years – renting is probably a better plan. Persons not expecting to live for another 15 years or more should probably consider renting, and of course finances must always be a priority: If your rent is low – say, two-thirds or less of what your total monthly payments, including taxes and insurance, would be if you purchased a home – you probably want to keep renting for now.

Better to buy. Purchasing a home has many advantages over renting, and right at the top is that an owner stops making monthly mortgage payments when the mortgage loan is paid off. Monthly expenses won’t drop to zero – the homeowner must still pay property taxes, as well as maintenance and insurance costs – but removing the mortgage from the equation always means significant monthly savings. Similarly, where renters basically “throw away” their rent money every month, homeowners are putting that same money toward something – they’re building equity in their home. Money spent paying back the mortgage loan principal, as well as money spent on the purchase down-payment, is money they’ll get back.

And that’s not all. Homeowners enjoy other advantages over renters. By itemizing their income tax returns, they can deduct both the cost of their property taxes and interest paid on their mortgage loan. And home values generally appreciate at a similar rate to inflation – about 3 percent annually (many believe real estate values increase at a much faster rate than inflation), meaning the longer you own your home, the more it’s worth.