Sunday, June 22, 2008

Should I buy or rent?

If you are in it for the long term, this is a great time to buy with the low interest rates and dropping home prices. However, the decision to buy or rent should be based on many factors such as your financial stability, stability of your job and what stage of life you are in. In a nutshell, buying may be a good option for you if you have a steady income and a stable life and would like to plan for your future. On the other hand if you are uncertain about your financials, or if you are not sure where your next job takes you, you might be better off renting.

When you rent, you are paying some one else's mortgage, and additional profit as well. Every month, you are parting with money that could be your future savings; you have chosen to rob yourself and to make the property owner richer. Why do you want to keep throwing away your hard earned money when you can contribute that towards owning your own home?

When you make the decision to buy your home, you are making a decision that will profoundly change your life. You are taking charge of creating your own destiny, one of creating a financially secure future for you and your family. Of course, you have to be cautious, plan carefully, and make responsible decisions that meet your budget. Failing to do so, and buying into bigger dreams that you cannot afford is a sure way to loose as can be evidenced by the current state of affairs in the real estate market. For a little increase over your monthly rental payment, you get a better quality of life as an owner.
If you choose to buy property, I strongly recommend a fixed rate mortgage, because you can plan on your monthly mortgage payment being the same.
Lets consider the advantages of renting
  1. After the lease terms are satisfied, you can leave with a few months notice.
  2. If you have to break the lease, its not as disastrous as not being able to pay your mortgage
  3. If something breaks down, just call the landlord to fix it

Disadvantage of renting
  1. No savings. Every month, you pay in advance for the privilege of living at your apartment
  2. Every time the lease expires, the landlord wants you to sign a new lease, with a rent increase
  3. Noisy neighbors. Need I say more?

Now lets look at the benefits of owning a own home.
  1. Tax benefit. Interest paid on your home is tax deductible.
  2. Homestead exemption to provide additional protection for the home owner.
  3. Unlike renting, you are saving for the future with every payment.
  4. Appreciation over a long period of time. Housing generally appreciates over a long period of time as population increases and the need for housing increases as well.
  5. Improvements pay off. You can make your home more appealing by doing little things like landscaping, or upgrading your home incrementally. These improvements will add value to your home that the next buyer will find more appealing
  6. At some point in the future if you decide to sell your house, you should have built up equity that will be yours.
  7. Though I don’t recommend it, you can borrow against your equity in times of need.
  8. No more rent increases (If you get a fixed mortgage)
  9. You are the king of your castle. You dont have to live by the rules of a landlord anymore.
  10. Pride of ownership. Its the American dream.

Disadvantages of owning a home
  1. You have to be financially responsible. Not being able to pay the mortgage can be disastrous
  2. Not able to relocate as easily since you have to sell or rent your home first
  3. If something breaks down, YOU have to pay to fix it

Buying is the only option that will help you save for the future with every payment. However, buying is certainly not the best option for everybody; that decision should be based on many factors including your ability to buy and continue your payments, how long you plan to live in the area, and how stable your job and life is, and what you expect from home ownership.

You can use The New York Times calculator to figure out the numbers.

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