Renting vs. Buying
by First Colony Mortgage
People have many different options for housing; apartment, townhouse, condo, regular house, but the main difference for all people is renting or buying. Which is better?
Run the numbers
When you are considering whether to rent or buy a home, one of the first steps is to run the numbers of what the monthly costs would be and then compare.
Example 1. Renting a standard home – monthly cost: $1200
- That is rent cost only
Buying that same exact house could save you money
- An FHA loan with less than 5% interest rate, an estimated monthly payment would be $1040, that is a $160 monthly savings, and that is owning the home!
- That doesn’t include benefits of home ownership, such as tax savings
Build Equity – Don’t Make Someone Else Rich
As a renter, each month you pay your rent to the landlord for the cost of living in their property. After 5 years all you have done is given the landlord money and have nothing to show for it. On the flipside, when you buy a home it becomes an investment and after that same 5-year period you will have equity built up from paying your mortgage. What is equity? It is the difference between what the home is currently worth and what you still owe on the home. Equity increases as you make monthly mortgage payment and/or if the property value goes up. That equity you build is especially great if you need to sell the home for some reason.
As a renter you won’t build equity in the property, but your landlord sure will.
Payments Are a Factor
With renting or buying you are still paying for the cost of housing each month, but that monthly amount could change on you. As a renter, your landlord has the choice of raising the cost of rent for you and other tenants. They own the property, so they can dictate the terms. For example, in year one your rent is $750 each month, but in year two it is raised to $800, and in year three it goes up to $850. Do you see the pattern?
On a fixed rate mortgage loan your payment will be the same now and 30 years from now. When you buy a home and your monthly mortgage payment today is $1000, it is still going to be $1000 a month in 10 years. You don’t have to worry about payment increases like renters do because you are locked in at one price for the life of your loan!
Put a Nail Where You Want
Renters typically have a list of do’s and don’ts when they move in, along with the security deposit and all that jazz. That list can be very restrictive when it comes to decorating and other choices.
Generally speaking as a homeowner you have much more freedom than a regular renter. Want to paint a wall purple? Always wanted to have a dog? Do you just want the satisfaction of putting a nail in the wall where you want to hang something? All of these things are possible when you own a home. You are free to make those choices without worrying about fees or security deposits from the landlord.
Homeowners can receive yearly tax benefits for having a mortgage. The interest you pay on your mortgage is tax detectable if you itemize your taxes. This is great especially at the beginning of a home loan when quite a bit goes toward interest. There can also be tax incentives for certain things in your home like the types of windows or insulation that you have.
Renters don’t get any tax benefits.