Home buying, for some, can be an absolute dream come true! However, a large percent still prefer home rentals to buy a home. When ready to settle down and start a family, Americans face the renting vs. buying a home debate. To make a decision, you need to consider the pros and cons of home rentals vs. those associated with home buying. In this post, we uncover the pros and cons of home buying. We will also examine the pros and cons of home rentals. Keep reading to discover what the two sides hold.
A) Home buying
Before you have settled on buying a home, you must consider how a big financial commitment will affect your lifestyle. Thus, it makes sense to review the advantages and disadvantages of becoming a homeowner.
Pros of owning a home
1. The Federal Tax Benefits
One of the best benefits of settling on home buying lies in the federal tax benefits enjoyed by homebuyers. Here is an overview of the tax benefits accruing from home buying.
- Enjoy Property Tax Deduction: The homeowners can cut down the taxable income by deducting the amount paid as property taxes. Such deductions will save the homebuyer a huge amount that goes into paying mortgage interest.
- Mortgage Interest Deduction: Further, for the homeowners who itemize deductions, it can reduce the taxable income by deducting the interest paid on the home mortgage.
- Enjoy more Profits upon Selling the Home: A taxpayer who chose to sell the home is expected to pay capital gains tax on the profits earned from the sale. However, homeowners are allowed to exclude from the taxable income up to $250,000 or $500,000 in joint ownership of the capital gains on the sale of the home so long as they meet specific
Thus, buying a home gives the buyer a chance to enjoy more savings in federal tax benefits.
2. Equity Building Initiative
Buying a home gives you a chance to grow your equity as you pay down the mortgage. Ideally, home equity is the difference between property sale value and the outstanding mortgage balance. Over time, as you pay the mortgage down, your equity is set to increase.
3. A home is a Good Long-Term Investment
Statistics show that the value of houses in the United States has been growing at an average rate of 5.3% for the period 1992 to 2020. Thus, owning a home is an excellent long-term investment. Even if the structure decreases, the value of the land where the structure sits keeps increasing. When buying a home, remember that you are investing in an asset for yourself instead.
4. Stability and Greater Privacy
American families tend to live long in a property they have bought. This is compared to a rental property where you may receive a notice to relocate at any time. Further, homeownership provides the benefit of privacy. You can renovate the property to your liking, compared to a property you have rented.
Cons of Owning a Home
1. Requires a High Upfront cost
Homebuyers incur a huge cost when starting the home buying process. The costs to anticipate when you decide to buy a home include:
- Down payment
- Closing costs
- Property taxes
- Mortgage insurance
- Home inspection cost
- Title search and title insurance costs
This is among other costs of owning a home.
2. Less Mobility
Another disadvantage associated with homeownership is to do with ease of relocating. Homeowners may find it challenging to relocate from one city to another even when offered an attractive job.
Although a home you have bought is considered to an asset, selling the property may take longer than anticipated. Further, while trying to sell the house, you will be expected to keep paying mortgage repayments and the cost of property maintenance.
B) Home Rentals
1. Lower Initial Cost
For renters, the initial cost is relatively lower. You just need to pay the security deposit plus first month’s deposit, the price of moving to the new home, and a small service fee to the property company if required. This makes it convenient for people who have just completed college studies and looking for a more stable job.
2. Property Maintenance is Not Renters Responsibility
The tenants are not asked to pay any amount to keep the property in good shape. However, a wise property owner calculates the cost of property maintenance and distributes it to all tenants in monthly rent amounts.
Renting a home comes with the benefit of being able to relocate anytime. However, having a mortgage makes it difficult to move, while selling the property still takes time.
Cons of Renting a Home
1. Renovating the House is a No!
You have to consult the property owner in case you need to renovate the property. To that extent, you just have to live in the property in its current state.
2. You aren’t Building Equity
Renters are paying monthly rent to the property owner or the property company. Thus, you are helping the owner build equity by repaying the outstanding mortgage.
3. Rent May Increase anytime
You may be comfortable with the amount you are paying as rent. However, the property company may decide to increase the rent when they feel, and by a rate, they decide without consulting the tenants. Thus, it is difficult to budgeting rent amounts on a long-term basis.
Buying a home requires a substantial financial decision, which can be scary for the beginner. However, a reputable mortgage broker can help breakdown the requirements of purchasing a home, making it easier for the new buyers. Talk to a financial mortgage broker today to begin your journey of homeownership.