Rent or Buy Your Home – The First Question

For most families there is only one answer!rnThe one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Decorating and pets may be issues as well. The primary disadvantage to renting is that the landlord can force you to move once your lease has expired. Then there is the realization that your rent is making your landlord’s mortgage payment – not yours.rnOwning a home is big responsibility but given the freedom, stability and security of owning your own home, it is worth it. It is also an investment. When you make a mortgage payment, you are building equity. Although most of your mortgage payment will be going toward interest and other components of the mortgage such as taxes and homeowners insurance, the standard fixed interest rate loan is amortized over the life of the loan. Amortized - means that your monthly payment includes enough money is contributed to the principal balance to pay off the loan at the end of the term. A 30 year fixed loan is paid off in 30 years. This might seem like a very long time but if your home appreciates, it can be surprising how much equity can occur in just a few years.rnOwning a home also qualifies you for tax breaks that reduce the effective cost of your mortgage. Your mortgage payment is mostly comprised of interest and real estate taxes. Both are deductible on federal and state taxes (primary residence only). This can represent a huge tax savings. So you say “that’s great at tax time but it doesn’t help me make the monthly payment”. Actually it can. If you are a salaried employee, IRS does not require that any more is deducted from your paycheck than you actually owe. You can increase your number of exemptions to reduce the tax deducted and increase your take home pay. Effectively you can use the IRS withholding calculator to help you determine the number of exemptions you can claim. http://www.irs.gov/individuals/page/0,,id=14806,00.html. You may not want to do this every year but it can help with payment shock during the first few years. But be careful; you should always consult an accountant prior to changing your W-4 exemptions.rnIs buying a home a safe investment?rnThe short answer is NO. The downturn in the real estate market during the past several years has taught us that. Are there any safe investments that offer a substantial return? Over the long haul real estate may be the safest bet you can make. There are many factors that determine property value. Inflation, supply and demand are the primary factors. It is very improbable that we will ever see zero inflation. If a home builder has to pay more for materials, he must sell the home for a higher price or stop building. We keep making more people but be can’t make any more land so when demand is greater than supply appreciation occurs. This an over-simplification and does not factor economic considerations but over time it is probable that well located real estate in growing communities will show substantial increase in value. rnHave you considered buying a home but find the thought of committing to a real estate agent, divulging your personal information to a mortgage lender and making one of the monumental commitments of your life a frightening prospect. So does every first time home buyer. For most of us, it isn’t easy to get ahead in life but if you buy a home and don’t make any serious mistakes along the way, you will be amply rewarded in your retirement years.