When you’re trying to decide whether to keep renting or buy a home, a competitive housing market can be confusing.
Do you stick to paying rent each month in hopes that home prices will go down? Or do you make the move to home ownership so you can benefit from the increase in home values?
Those are big questions with no wrong answer. But home values have climbed consistently over many years, and despite an uncertain economy, those values are still going up.
By some estimates, appreciation on homes nationwide will average just over 3% through 2023. If you buy a $300,000 home, you could gain at least $9,000 in appreciation over the next year. This data provided by CoreLogic, a leading provider of financial, property and consumer analytics.
Building equity in your home is a big advantage, and it happens as home values increase. Equity is the difference between the appraised value and what you owe on your mortgage, so you could be building equity in the property with every timely house payment.
Pros and Cons of Renting
A top benefit of renting is that you can move again once the lease expires. However, your rent could go up every time the lease renews. Prices are predicted to rise significantly over the next couple years. Your monthly rent may include some or all utilities, which you would pay for in addition to a home loan.
Also, if a pipe leaks or a window breaks, the management company will handle repairs. On the other hand, you may not be allowed to paint the kitchen or install shelves in the garage without approval.
Your credit score plays a role in both renting and buying. Landlords may not choose you if your credit is poor since it’s an indicator of tenants who may make late rent payments. It’s worth noting that you can build up your credit score with on-time rental payments, which can help you qualify for a better interest rate on a mortgage.
Pros and Cons of Buying
There’s a genuine sense of accomplishment that comes with buying a home. Unlike rent, if you have a fixed-rate mortgage, your house payment will remain steady for the life of the loan.
In addition to the value of your home appreciating, there are also tax advantages to home ownership. You can deduct mortgage interest and real estate taxes on your federal tax return every year. Plus, when you sell, profits are tax-free up to $250,000 or $500,000 for married couples.
As the owner, you can decide when to paint or make other upgrades to the property without approval. Of course, that also means you are on the hook for any repairs, and you may need to replace the furnace, water heater and appliances over time.
Renters may have to pay first and last month’s rent when they move in, but homebuyers will need a down payment and closing costs.
If you want to buy but aren’t sure how it works, learning more about the mortgage process could bring clarity to your decision. Work with a local lender that will walk beside you before, during and after you purchase a home.
