Benefits of Buying Over Renting

The responsibilities of home ownership are a bit daunting to many people. Some folks spend their lives avoiding what they consider a financial burden; never experiencing the comfort, security, and thrill of owning their own property. There is a common misconception that people who rent are able to save more money than home owners. In reality, if someone is planning to live in the same location for at least seven years, itemize their tax deductions, and has good credit, buying a house is significantly less costly than renting.

Why those three factors matter

Buying is a much better option than renting in practically any major metro market of the United States. For many cities, the savings are calculated to be more than 50 percent, as high as 70 percent in some areas. Savings are this high largely due to the low interest rates. People in a 25 percent federal tax bracket also benefit from buying. Here is why the home buyer's situation, credit score, and tax filing matter:

• If they itemize their tax deductions, they are able to subtract the interest paid on the mortgage and their property tax payments from their pre-tax income. This is going to lower their total tax burden. The higher their tax bracket, the more they benefit. To not itemize will increase the cost of owning a home. How much it raises the cost of home ownership depends on the amount of interest and property taxes paid and the filer's tax bracket.
• Low interest rates make home ownership possible for people of all income levels. People with a good credit score qualify for better loan terms and lower interest rates than people with less than stellar credit. One percentage point on a mortgage interest rate results in at least a 10 percent higher monthly house payment.
• Each time a person buys or sells a house they encounter some transaction cost. These cost are spread out significantly for individuals living in a home for seven or more years. Therefore, their average monthly cost of owning the home is much lower than a person who owns the same house for less than seven years.

It is possible to get bogged down over-analyzing numbers and overlook the many other benefits buying a home has over renting. In addition to tax savings and having more space for the same monthly payment, there are some indirect benefits. Some are financial; some make for a better overall quality of life.

More security

Renters have a more tenuous relationship with the roof over their head than home owners do with theirs. There have been situations where the landlord had a mortgage on the property being rented and allowed it to fall into foreclosure. The tenants were forced to move through no fault of their own. Landlords can also terminate a lease for a wide variety of reasons.

Less stress

On the subject of landlords: Some are good. However, most property managers and landlords are stretched thin trying to cater to the needs of a lot of tenants. This can result in long delays before needed repairs are made. Renters are often stuck living with ongoing plumbing and HVAC problems. Home owners have more control over their situation. If they are not handy at repairs themselves, they have several contractors willing to compete for their business, and they report directly to the homeowner.

Consistent monthly payments

A fixed-rate mortgage can't go up, regardless of what happens with the economy or inflation. Renters can be easily edged out of their residence with increases in rent. People who lock in their monthly mortgage payments at an affordable amount are better protected from inflation than renters.

Renters often have to rent storage units for personal items. If they move frequently (renters often do), they may have to buy furniture with each move to fit small spaces. They often end up giving away many belongings or selling them for a fraction of their true value. Home owners typically have more space and buy less furniture. Perhaps home ownership isn't for everyone. But owning a home is an accomplishment. It brings with it a unique since of pride and emotional satisfaction like nothing else.