The title of this post is a question that if I had a dollar for every time someone asked me, I could probably already be retired. Unfortunately, there’s no easy answer that applies to everyone. One of the biggest determiners is location. For instance, here in Portland, the rental market has gotten so out of control in the past few years, that rent increases are exceeding housing price increases. Couple that with the fact that mortgage rates are still so low, that more and more renters are looking at home ownership as they find that monthly mortgage payments are actually more affordable than their current rent. Now, this isn’t the case everywhere, but it is happening all over the US. This article from Bloomberg shows the strain that high rents are causing people all over the country.
Many real estate sites will tell you that you should never, ever rent and that you need to buy now. There’s a reason so many people decide to rent, though. Renting isn’t always a bad idea. If you’re the type of person that never likes to stay in the same place for too long, then it probably doesn’t make a whole lot of sense to buy a house. Zillow’s Breakeven Horizon estimates the number of years you would have to live in a home before buying it would become more financially advantageous than renting it. At the end of 2015, the national breakeven average was 1.9 years. So if you’re not planning on staying somewhere for more than 2 years, it definitely behooves you to rent. If you’re lucky enough to be somewhere that’s rent-controlled, and you’re happy with your amenities, why would you walk away from that? Having a landlord means that you aren’t the one that’s ultimately responsible for the home, which can be a big allure to some people. For anyone that falls into these categories, by all means, keep renting!
Many of us, however, dislike the idea of paying down someone else’s mortgage, but aren’t sure if buying is right, either. While there are pros and cons to both buying and renting, here are some pros to being a home owner:
- Buying is cheaper than renting. According to a study done by Trulia in May 2015, nationally, buying is 35% cheaper than renting due to low mortgage rates and home price increases and rent increases being on par with each other.
- Freedom! Want to paint the kitchen a different color, or add carpeting to the bedrooms? When you own, those decisions are up to you and you alone (well, maybe your budget, too). Unless you have an HOA, you are free to make changes as you wish, and really create a space that is all you.
- Wealth Building. Real estate is usually someone’s biggest financial investment. Home prices tend to appreciate as time goes on, so you’re building wealth just by being in your home. Also, the more you pay down your mortgage, the more equity you have in your home. So the longer you stay, the more wealth you’re building!
- Homeowners get more tax breaks. You may be able to deduct your mortgage interest payments every year, as well as any deductions for any energy efficient improvements that you make to your home. Contact a tax professional to find out all the ways home owners can get tax breaks.
- Fixed rate mortgages don’t increase, rents do. Unless you’re somewhere that’s rent controlled, your rent will go up. It is just a part of the rental market. If you choose a fixed rate mortgage, your monthly payment won’t increase for the life of the loan. There’s definitely a peace of mind in knowing that you’ll always be paying the same amount every month.
Ultimately, it’s going to be up to you whether renting or buying better suits your lifestyle. If you’ve been on the fence for a while now, however, this is a good jumping off point to help make your decision.