Buy or Rent?
Deciding what's right for you.
Our two cents
Owning your own home may be part of the American dream, but in some instances it makes more sense to rent. Yes, your monthly rent check is a recurring cost you'll never get back. But owning a home involves a lot more than just paying your mortgage.
What's best for you? Here are some guidelines.
Buying vs. renting
- Consider renting if you…
- Consider buying if you…
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Consider renting if you…Don’t have the funds for a down payment.>Consider buying if you…Can put 20% down and pay monthly mortgage payments.>
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Consider renting if you…Have a temporary housing need.>Consider buying if you…Intend to live in the area for several years.>
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Consider renting if you…Expect your housing needs to change substantially in the near future.>Consider buying if you…Can benefit from the tax advantages of home ownership.>
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Consider renting if you…Expect to change jobs, requiring you to move in a few years.>Consider buying if you…Anticipate a stable income.>
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Consider renting if you…Are not willing or able to deal with general maintenance.>Consider buying if you…Want to improve the appearance or structure of a house.>
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For an easy way to compare the costs, find the rent ratio by dividing the sale price of a home by its estimated annual rent. A high rent ratio (above 20, typically) means the cost of ownership exceeds the cost of renting. Please note that this rent ratio is just a general guideline and may vary by location.
Example: If a $250,000 home rents for $1,000 a month, the ratio would be $250,000/$12,000, for a rent ratio of 20.8. In this case, it's probably more cost-effective to rent.
If the same home rents for $1,500 a month, the rent ratio goes down to 13.8, and buying becomes more attractive.
If you're thinking about buying a home, do the math.
Tax advantages of owning a home.
A mortgage is a big liability, but it can also provide some tax advantages to help offset the cost. Here's why:
- A home mortgage is a tax-deductible interest expense.
- If you pay points on your mortgage, these can be deducted in the year you pay them for an original mortgage.
- Property taxes are also income tax-deductible.
Talk to your tax advisor about how a mortgage might benefit your tax situation.
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