Every adult or family makes the same decision at least once a year, even if they don’t realize it: Buy, or rent? We need a roof over our heads and there are only two ways to make that happen.
The answer to the question is almost always tied to personal finances. Most would gladly purchase a home for long-term living if they were able. Look at the relatively sky-high prices of down payments, closing costs and mortgage payments—when compared to monthly rent—and it’s no wonder that many choose to continue renting. Some just can’t imagine spending all of the money required for ownership.
Does the low upfront cost of renting necessarily make it the more financially prudent option, even for those with mid-level cash holdings?
No. There are a number of reasons why ownership will ultimately benefit the buyer, even if it seems impossible. We’ve assembled a list of just a few reasons why springing for a home is one of the wisest investments that people can make during their lifetimes. Making the jump can be scary, but the benefits provide a parachute that turn buying into a much smoother ride than renting.
You’ll be paying for somewhere to live, regardless of whether that’s in the form of rent or a mortgage payment. The difference for the latter is that you’ll eventually stop paying and legally own, while in the latter case you’ll be paying rent for the rest of your life. A cheap rent looks much more appealing in the short-term than a typically higher mortgage payment.
The benefits of mortgage payments is that they can be dependable, if the buyer opts for a fixed-rate option. Most rents will never be able to claim that. You may rent for $900/month in 2016, compared to a $1,300 monthly payment on a home. What about 30 years down the line? It’s impossible to predict inflation rates, but forecasts suggest it will increase up to 2 percent a year in the near future. That, by itself, implies the same apartment will cost nearly $1,500 per month in 2036—based on inflation alone. Consider that the price of rent is rising quicker than the price of homes, and that number only increases.
The most obvious reason to buy a home is to give yourself peace of mind, knowing that your monthly payments will stay the same for 30 years, instead of towering higher and higher.
Many of us don’t have the guts to play the stock market…after all, it’s a risky business. Home buyers often don’t realize that they’re making an investment when they purchase a property, and it’s because owning a home is so safe an investment, it hardly feels like a gamble at all.
This is all thanks to that ever-decreasing value of the dollar we mentioned earlier. As inflation rates hold, costs go up, even if demand remains the same. If you buy a home for $250,000 during 2016 (and keep it in decent shape, of course), that same property will be worth nearly $415,000 in 2036, when your 30-year mortgage is up. That’s a literal “nest” egg that you’ll be sitting on, which you can either cash in on and move to a new home, or save for a stormy day.
Your bank account (in the long-term) isn’t the only thing that wants you to buy a home. The U.S. government would also like to see you get out of a renting situation, and it has prepared a number of tax incentives to bring buyers into the market.
The most obvious tax break that buyers can reap is the deduction of one’s mortgage interest. This can be the heaviest component of a mortgage payment during the first few years of owning a home, so it becomes a huge write-off during this period as well. Property tax is another element that’s completely deductible. If you’re still on the fence about buying now, know that the origination fees charged during your closing costs can also be written off, bringing back a significant sum during your first year of ownership.
Many people would love to start a savings account for future needs, but just don’t have the cash required to open one. A home essentially works as a savings account, as your equity will increase every time you make a mortgage payment. Your home forces you to save up and, as we mentioned before, when you finally “withdraw” or move to a smaller home after the kids move out, the amount in that “account” will have increased dramatically.
One other benefit to homes versus traditional savings accounts: You can’t live in a bank.
These are just a few of the major reasons why buying a home is a wise financial decision, even if the initial numbers scare you. That said, don’t rush in. If you’re on the fence, it doesn’t hurt to meet with a lender to get a professional opinion on your financial status, and whether buying now is a smart option for you. If not, take these tips into consideration and start planning for getting to a healthy spot before looking for homes.