It is an age old question, which is taking on new importance in today’s changing real estate market; is it better for you to buy your home or rent it?

Like many other decisions, there is no blanket answer, since the answer for the most part depends on your individual situation, your priories, values and goals. But thankfully there are several tools help you evaluate this question.

• Are you planning to live in your home for several years? Buying involves a large front-end cost in the form of a down-payment, closing costs and loan application fees. While there may be several long-term benefits to making that sort of investment, you are unlikely to re-coup these costs if you are going to be moving in a short period of time.
• Do you have some savings in the bank? In addition to the closing costs described above, owning a house can be expensive to maintain. If your plumbing goes out, the roof begins to leak or the paint deteriorates, you will no longer be able to simply call the apartment manager to fix the problem. You will either have to fix the problem yourself or hire a handyman. And both scenarios can be costly. If you have only budgeted enough money to pay for the down payment and closing costs, you may want to delay your home purchase until you have started a nest egg that will help you take care of whatever maintenance issues that will come up.
• Is your credit in good shape? If not, you may want to concentrate first on building up a favorable credit history, because a few dings on your credit report could translate into an expensive loan, or it could even hinder your ability to get one at all.

If you answered yes to many of these questions you may be well-suited to take on the challenges of homeownership. You will quickly learn that there are several benefits as well.

These include a chance to build equity in your home, increased tax benefits, and an appreciation value.

To illustrate this, Ginnie Mae, a government agency dedicated to providing financial assistance to low- to moderate-income homebuyers, compared the long-term financial outlook of someone who rented an apartment at $800 a month, and a homeowner who purchased a $100,000 house and is making $1,000 a month payments.

The renter typically saw a five-percent annual rent increase, meaning that in six years the rent exceeded the homeowner’s payment. In addition, the homeowner was able to receive valuable tax breaks the renter was not entitled to. These two factors combine to create a substantial savings over renting. For example, in Ginnie Mae’ model, the homeowner saved $2,664 in tax savings in the seventh year of homeownership.

In the end, deciding whether it is best for you to buy or to own your own home is a deeply personal decision, and requires a careful assessment of your economic and personal goals.

By David Plowman

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