Deciding between renting or buying a home can be a tough decision. Here are some pros and cons to help you decide.
Pros
- As a homeowner, you build up equity in the house with every monthly mortgage payment.
- As the owner, you get to recognize any gain on the entire property if you sell it. With a mortgage, you can leverage your dollar to go further by investing in a more valuable asset than you may otherwise be able to afford.
- If you meet both the ownership and use test, section 121 of the current tax code allows individuals to exclude $250,000 worth of capital gains at sale ($500,000 for married couples filing jointly).
- You know your mortgage costs upfront – no annual rent increases, and if interest rates decrease, you can refinance to a lower monthly payment. You remove yourself from annual rent increases from a landlord.
- Mortgage interest is tax-deductible up to a mortgage of $750,000.
- If you have an extra room, you can rent it out for extra income.
Cons
- You may need to have a down payment. Typically 15-20% of the purchase price.
- You are subject to costs other than rent – property tax, homeowners insurance, HOA, upkeep, and repairs.
- You are liable for accidents that take place on your property, which a homeowners insurance and umbrella insurance policy can help to mitigate.
- If you take on a mortgage, you’re subject to interest rates at the time of purchase.
- If you decide to move and sell your home, you need to cover selling expenses, such as the cost of an agent and any repairs necessary to prepare the home for its sale.
- Property tax can increase annually – and these payments do not build up equity in the house.
- Less flexibility than renting – you cannot simply pack up your belongings when your lease is up and move to a new location. Moving and selling your home requires time, money, and most likely stress.
Decisions such as these call for planning ahead.
Ready to start planning for a brighter future? Call today at (408) 840-4030, or contact our team online.