Buying vs. Renting
The American Dream: Owning your own Home!
If you are currently renting a home and are considering buying a home in the near future keep reading. If you are new to the area and think you may want to rent before buying a home you may want to consider some of the following factors:
- How long will you live here?
If you are going to live here less than two years, keep on renting. The current tax laws allow homeowners to avoid taxes on the profits from selling a home, but only if you've lived in the home a minimum of two years. If you realize a capital gain on selling your home the government allows a profit of up to $250,000 for a single person and $500,000 for married persons without paying taxes on that gain. If you have not lived in the home two of the last five years before selling it, you will not be exempt from the taxes.
- If you are not financially sound do not buy a home yet.
Despite all the great loan opportunities available, get your finances and other loans under control before purchasing your home. Lenders often base the interest rate and terms of your mortgage on your credit score and history. To get the best loan, you will need to make sure that you have downpayment money and a clean credit report.
- Make sure you are ready to commit to maintaining a home.
No matter how new or in what great condition a home is in when you buy it, the home will require maintenance. You need to understand that your home is a financial investment. It will be worth more if you can commit the time and money needed to keep it in good shape and updated while you live in it.
- If you need a tax break, owning a home can significantly cut your taxes.
Mortgage interest is a straight deduction from your income tax, plus you can deduct real estate taxes. For example: If you are in the 28% tax bracket and pay monthly on a $150,000 loan, you can receive a credit that will reduce your annual income taxes by about $3,600 ($300 per month)!
- Renting is an expense while home ownership is an investment.
Hire a Realtor, buy a home in the right location, reside in the home for a decent amount of time, and take good care of the home. When you sell, you should realize a gain on your investment.
- Owning a home gives you more flexibility in your lifestyle.
Home ownership allows you to decorate, landscape, upgrade or change the home to suit your lifestyle and tastes. As a rentor, it doesn't make sense to spend money redecorating someone else's home.
- Are you relocating to the area?
If you are new to the area and want to live in an apartment for awhile before you buy, be careful where you rent. When renting for six months to a year, you will probably become attached to that area. You will become comfortable with the stores, Dr. offices, services, and general location. However, when it comes time to buy, many people become reluctant to leave that area, yet the home that they want to buy does not exist anywhere near the apartment. This can create a "real estate trap." Hire a Realtor. Have them educate you on the different areas that may suit your lifestyle and on the neighborhoods that may interest you when you are ready to buy.