Buying a Home is
American Dream. It is more than a place you put your hat at end of day. It defines you, protects you, and prospers with you. Yes, Home Ownership is a noble pursuit, but it always starts with this first, important question: Should I buy or Rent my Home? The answer, surprisingly, is not so obvious. Now question of “affordability” is an important one, but that’s not subject of this article. We have a free calculator at our website. You’re welcome to use it. The subject of this article, however, deals with questions that must be answered, before a renter can migrate into magical realms of HOME OWNERSHIP.
Here are 5 MAGIC POINTS that you need to examine, on whether or not to BUY or RENT your next Home:
1.EXPENSES 2.COMMITMENT 3.MONTHLY PAYMENTS 4.TAX RETURNS 5.WEALTH
1.EXPENSES:
Renting a home requires that you give a check to landlord each month. That’s it. You’re done. Everything else is simply taken care of for you. When you OWN a home, you are in business for yourself, and this means that you must handle all of expenses yourself.
a)You are responsible, of course, for monthly mortgage payment to bank...
b)You must pay all your utilities, including phone, gas, electric, cable, trash, water, etc.
c)Don’t forget your responsibility to take care of maintenance. Not having enough money in bank account is not a good enough excuse. If it’s broken, ya gotta fix it!
d) Don’t forget your Homeowners Association Dues, your Membership Fees, Property Taxes, Special Assessment taxes, insurance…yada, yada, yada.
When you rent a home, you give landlord a check. When you buy a home, you must ensure that all expenses are met and managed every single month, forever...
2.COMMITMENT:
Renting and Buying have different financial commitments.
a)To rent a home usually requires a lease. Sometimes it’s month to month; sometimes it’s a 12 month lease. But, no matter what, there’s always a way out. Your commitment is limited to time you choose to stay and reside there.
b) When you buy a home, you usually sign a 30 year mortgage, which most people would argue, is like forever. You are committed to ensuring that payment is delivered to bank or lender every single month, on time. They don’t care if you want to move at some point. You can sell your home of course, but you can’t just break your mortgage, like you can break your lease.
Buying a home requires a long-term, financial commitment. Renting a Home simply requires that you cut a check each month you reside at home of choice.
3.MONTHLY PAYMENTS:
It always appears that a renter will pay less each month on monthly payments. Let me shed some light on this subject. Examined closely, this is as far from truth as moon to Earth. Let’s use an example:
a)As a renter, you pay $800 a month, let’s say, that increases 5% each year. The math may differ with you and your landlord, but you get idea. Barring rent-control, this is inevitable. Simple enough.
b)As a Homeowner on a fixed rate loan at $1000 Principal and Interest per month, payment never changes…Never…Not ever… c) In other words, renter’s monthly rent will eventually SURPASS homeowner’s mortgage payment…Much faster then you might expect.
In this example, our Renter’s Monthly Payments will exceed our Homeowners Mortgage Payment, in about 6 years.
4.TAX RETURNS:
A renter usually does receive a tax benefit from State and Federal tax boards each year, sometimes referred to as a “renter’s credit”. But Homeowner receives a deduction on Interest paid on their loan. This is a huge benefit to homeowner.
a)Let’s use same example with our $800 renter. At end of year, our renter might receive a $600 renter’s credit on their 1040EZ form when doing their taxes. Simple enough.
b)Our Homeowner, on other hand, paid a total of $12,000 in mortgage payments, of which about $11,500 went towards INTEREST. This INTEREST is a write-off.
