Buying vs. Renting - Which is better?

In most cases, it’s better to buy a home than to rent. But not in every case. Comparing buying to renting is actually a fairly complicated endeavor, but here are some quick rules of thumb.

You should usually buy instead of rent except when:

• You intend to move within a few years (less than 2)
• Your rent is very low (about 2/3 or less of what your total monthly payments would if you bought a house, including taxes and insurance)
• You don’t expect to live more than another 15 years
  
  

	RENTING	OWNING
What you pay for	Rent	Once	For 15-30 years	Forever
	Renter's insurance (optional)	Down payment	Mortgage payment (principal & interest)	Taxes
		Closing costs		Insurance
				Maintenance
What can you deduct on your taxes	Nothing	Interest on mortgage and property taxes (if you itemize on Schedule A instead of taking the standard deduction)
		If it's rental property, you can also deduct insurance and maintenance, whether or not you itemized.
		When you sell your home, you don't have to pay any taxes on the gain, in most cases.
How you can build an investment	Take the money you would have spent on a down payment for a house and on a high monthly mortgage payment, and invest in something else instead	Your house is your investment. When you buy a house, your stake in the house is equal to your down payment. (If you put 10% down, you own 10% of the house when you start). As you make monthly mortgage payments, you'll gradually own more and more of the house. Also, the house will become more valuable over time. (Figure 3% per year.)
		Once you've paid off your house (in 15-30 years), you no longer have a monthly mortgage payment. All you pay for are taxes, insurance and maintenance. Besides that, you live free.
Pros	Simple	Pride and comfort in owning your own home
	Don't have to save for a down payment	Ability to customize the home exactly how you want
	Easier to move if you decide to relocate	Money that you pay towards the principal of your loan each month increases the % of your home that you own; in effect, you're paying yourself
	No cost or effort spent on maintenance	Monthly payment stays the same for 30 years; if you were a renter, your rent would definitely go up
		If you itemize deductions, you can deduct the interest you pay on your mortgage
		You leverage your investment by buying the home with (mostly) the bank's money; you might only put down 10%, but your whole house (100%) appreciates every year
		When (if) you sell your home, you don't have to pay any income tax on the gain

Should I keep renting until prices go even lower?

The best way to “play it safe” is to actually buy a home. Here’s why: studies show that owning a home is the best way to build household wealth. The sooner a person owns a home, the faster they begin to build up equity and wealth.

When you buy a home, you are also purchasing stability, knowing that you will pay the same monthly payment for the life of your 30-year, fixed-rate mortgage. Consider the current rental market – while home prices have been moderating, rents continue to rise. Where is the economic security in not knowing how much your rent will increase over the next three years? You don’t receive any tax benefits from paying rent, nor do you accumulate any price appreciation, as you would if you owned a home.

All the economic fundamentals show that this is a good time to buy a home. The real risk isn’t in buying a home, it’s continuing to rent.