Renting Vs. Mortgage
For many people, purchasing a home is considered a significant financial achievement. Owning your own home offers a sense of pride and security that you typically can't experience if you're renting. However, home ownership is not without its disadvantages and in some cases, it may actually be smarter to rent. Before you make the decision to rent or buy, it's important to understand what the potential benefits and disadvantages of each may be.
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Time Frame
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Renting typically involves a much shorter investment of your time compared to a mortgage. Depending on your rental company, you may be able to sign a lease for as little as three months at a time or as long as eighteen months. The amount of time required to pay down a mortgage is measured in years. Mortgages can last anywhere from fifteen to forty years, although your mortgage may be shorter depending on how much you borrow.
Cost
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There are several different things to consider when calculating the cost of renting versus buying. Renters typically have to pay a security deposit prior to signing a lease. With a mortgage, you're often required to put down a substantially larger down payment. In some cases, your rent may include certain utilities or association fees. With a mortgage, these types of costs are usually separate. With a mortgage, you're also required to pay homeowners' insurance and property taxes, which can potentially add on thousands of dollars in expenses annually.
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Benefits of Renting
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Renting offers you increased flexibility in your living situation, which can be beneficial if you plan to change careers, start a family or you think you will want to move in the near future. If your home needs maintenance or repair, this is typically taken care of by the rental agency. While rental agencies do have certain guidelines regarding your credit score and income, getting approved for a lease is an easier and less time-consuming process than applying for a mortgage.
Benefits of a Mortgage
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There are a number of benefits to buying your home. The interest you pay can be deducted from your taxes along with the amount you pay for property taxes. Typically, the value of your home should increase over time. As you pay down your mortgage, the amount of equity you have in your home should also increase. You can then borrow against this equity to finance home-repair projects or if you need money in an emergency.
Considerations
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If you purchase a home and are unable to make your mortgage payments, it can have serious implications for your finances. You may be forced into a short sale or a foreclosure, which can severely damage your credit. If you're renting and break your lease, your landlord can sue you in civil court for the remaining rent due or to recover any damages to the property.
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