The age-old “rent vs. buy a home” conundrum is something that most households face at some point. Is renting more financial conservative, or are you simply flushing money down the toilet with nothing to show for it after you move out? On the other hand, being saddled with a mortgage can be extremely financially cumbersome even though you’re building equity in an asset. What’s the right decision? And furthermore, how do you know when to make it?
With foreclosures at an all time high across the last several years, buying a home is a serious undertaking that requires several big commitments. You are committing to a monthly mortgage payment, a binding contract with a financial institution if you are taking out a loan, and all of the risks associated with unforeseen costs of home ownership (maintenance, contracting work, appliance replacement costs, etc.).
With regard to the hard numbers, buying a home first requires the upfront costs. These costs consist of your down payment (typically around 20%) and then all the fees associated with the closing costs. Closing costs consist of loan application fees, title insurance, appraisal fees, home inspection and more. Many people are blown away by the number of fees they must pay during closing. Be prepared! The more money you put down for your down payment, then the more favorable rate you may be able to receive from your bank. You should take stock of your cash liquidity and determine how much is a safe amount to put down upfront. You should still have more than enough cash on hand to pay recurring bills and such.
In addition to the satisfaction of owning your own home, the pros of home ownership include possible tax benefits and equity. As previously discussed, paying rent can often feel like flushing money down the toilet. With every mortgage payment, you’re actually building equity in your home. The tax benefit of home ownership is related to the interest on your mortgage. To receive the tax benefit from the government, the amount you pay in interest and property taxes must be more than the standard deduction.
Most importantly, every household’s circumstances and financial profile are different. It’s best to run the numbers for yourself, create a list of your priorities and determine what’s proper for your family at this time. Unstable jobs, potential relocation as result of a job, medical issues and other unique factors may play roles in your decision as well. Make a well-informed decision based on your unique situation.
And if someone you know is facing foreclosure or any type of real estate litigation issues, please consider reaching out to us at McFarlin LLP. We are here to help!