One of the most difficult financial decisions a person ever has to make is choosing when to make the transition from renting living quarters to buying a home. Buying a home has many advantages over renting, but is a serious, long-term commitment. Most mortgages last between 15 and 30 years and their monthly payments are often higher than when you rent.
While home ownership comes with many headaches and up-front costs, it is generally a much better financial decision in the long run. Mortgage interest and property taxes are completely deductible on your federal taxes. A fixed mortgage will cost you the same amount of money every month and is not subject to increase, unlike rent, which can increase every time you need to resign the lease. So while a mortgage payment may initially be higher than the cost of renting, they may level off over the years.
Think of buying a home as an investment. Overall home values have been appreciating for the past 50+ years, typically keeping up with the rate of inflation plus a few percentage points. This means the value of your home is likely to be more when you finish paying your mortgage than it was when you began.
At the same time, paying a mortgage actually increases your personal wealth. With each payment, the portion of the home that you own, or equity, increases. Having more equity in your home builds credit and shows lenders that you’re responsible, allowing you to get better deals on future loans. While renting can help you improve credit, it does not build any equity.
Perhaps the best part of buying a home as opposed to renting is the fact that the home is yours! This means you can do whatever you want with it and is great because you’re free to truly make your home your own. You can paint the walls however you like without asking a landlord for permission. You can own a pet without paying a pet deposit. If you want to make a room bigger, you’re allowed to knock down a wall. The freedom to make improvements to your home empowers you to increase its value even further, yielding a huge return on your investment.
While there are certainly situations where renting a home is the more appropriate action, it’s typically a worthy financial goal to plan on one day owning your home.