When you need to make a move, one of the first things you might ask yourself is, “Should I rent or buy a house?” While each has pros and cons, buying a home can save you money. In fact, a recent rent versus own analysis revealed that owning a home was cheaper than renting in every one of the top 50 markets, from San Jose, California to Cleveland, Ohio.
While renting may seem cheaper initially without the need for a big down payment, these factors mean that you’ll save money over time.
Building Wealth
The primary way buying saves you money is by building wealth. Once you’ve purchased your home, building equity over the years, it becomes a big benefit rather than a cost. It can even supply the means to a comfortable living during retirement. When renting your monthly living costs are a loss, but as a homeowner, every mortgage payment increases equity while leading to greater wealth.
As the principal is reduced more year after year, by the time you’ve paid off your mortgage, you can take out a loan against that amount, providing more opportunities to grow wealth, perhaps investing in a second home. Or you can sell with the proceeds potentially funding a high-quality lifestyle. Perhaps you can downsize, purchase a smaller home with a portion of the profits, use the extra cash to travel the world, or enjoy other fun activities.
A Fixed Housing Payment
When you rent, your landlord can raise the amount or decide to sell forcing you to find another place, and if rental prices have gone up, you’ll have to pay more. If you get a fixed mortgage when buying a home, that means you’ll have a stable monthly payment that won’t fluctuate. It will be easier to budget for emergencies and build your savings.
Tax Benefits
One of the more immediate ways you’ll save is through tax benefits. Homeowners can deduct mortgage interest and both local and state property taxes from their taxable income in the year that they’re paid, whereas renters don’t get these deductions.
If you pay discount points when taking out your mortgage, they can usually be deducted in the year they’re paid, provided you meet specific requirements outlined by the IRS. You may also be able to deduct private mortgage insurance (PMI), upfront mortgage insurance premiums on FHA loans, a VA loan funding fee, or a USDA loan guarantee fee.
Another thing to consider is that if you need to make improvements to your home due to medical reasons such as a disability, they may qualify as a medical expense tax deduction. That might include things like installing ramps, adding railings, widening doorways, or lowering cabinets.
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Upgrades That Increase Value
When renting, if you were to make upgrades, the owner would reap the financial benefits, but when you own a home, you will. While it costs money to maintain a home, making everything from minor repairs to replacing a roof, any renovations that improve it usually add value, increasing your profits when selling.