It's an age-old debate in the personal finance world: buy a home and enjoy the benefits of ownership, or rent a home and avoid much of the stress and expense that come with owning. Some people, like my colleague and financial wiz Dan Caplinger, feel that it's preferable to rent than to own. But here are a few good reasons to stop throwing your money away on rent and buy a home instead.
1. You'll reap some neat tax benefits
When you own a home, you get to enjoy a number of nifty tax benefits that can shave thousands off your IRS bill, depending on your personal costs. One major tax break you'll get is the mortgage interest deduction, which currently applies in full to home loans up to $750,000. However, if you signed your mortgage prior to 2018, that threshold is $1 million. The interest deduction can be especially lucrative in the early years of a mortgage, when the bulk of your payments are going toward the interest portion of your loan, as opposed to its principal.
In addition, you can deduct your property taxes on your return up to a certain point. The property tax deduction, which falls under the state and local tax (SALT) deduction, used to be unlimited. For at least the next seven years, it's capped at $10,000. Still, if you live in a state with low income and property taxes, you might get to write off the latter in full.
2. You'll build equity rather than burn through cash
When you rent a home, you pay a certain amount of money each month for the privilege of living there, which makes that payment a pure expense. When you own a home, however, it's more of a hybrid expense/investment, because while you are spending that money out of a need to have a roof over your head, you're also building equity in that property over time. This means that if property values rise in your neighborhood and you choose to sell your home, you stand to make money from it. That's not something renters can do.
Furthermore, if you remain a homeowner as a senior, you can use it as an income source by getting a reverse mortgage. Now make no mistake about it: Reverse mortgages aren't for everyone, and they certainly have their drawbacks, but it's good to have the option as a fallback.
3. You'll get more stability
When you rent a home, there's nothing to stop your landlord from booting you once your lease expires. But when you own property, it's yours to live in until you decide to sell it. The only way to effectively be forced to leave a home you own is to stop making payments on your mortgage and get foreclosed on. Barring that, you're good to stay put.
This is an especially important consideration if you have children and want them to remain in a specific school district. Sometimes, moving a mere half-mile away could shift you into a new district, which means forcing your kids into a new school system.
Of course, owning a home has some disadvantages you'll need to consider -- namely, the cost of maintenance and repairs. The former, when nothing goes particularly wrong, can easily amount to 1% to 4% of your home's value per year. The latter, meanwhile, can constitute a major financial blow, especially if you're talking about things like fixing a cracked foundation or replacing a roof. On the other hand, if you go into homeownership with a nice chunk of emergency savings, you won't have to stress quite as much when those repairs creep up on you.
Another thing you should realize about homeownership is that while your mortgage payment itself could conceivably stay the same for 30 years (assuming you sign a 30-year fixed loan and don't refinance), your property taxes are more likely than not to go up over time. Your homeowners insurance rates might also climb through the years. Therefore, if you're thinking of buying a home to lock in a guaranteed payment (something renters aren't privy to once their leases expire), remember that you may be looking at more variable costs than you'd think. Still, if you've landed on a neighborhood you can see yourself in for years and have the means to buy a home, it's a move that could certainly pay off in the long run.
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