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Rent or Buy?


Anyone who pays a large rent check to a landlord every month should review whether or not their money would be better spent as a mortgage payment. With record low interest rates and a large selection of homes for sale, the possibility for home ownership in America has never been better.

Consider the follow points before making a call to engage the services of a real estate agent.

Taxes. Monthly mortgage payments always include a portion for interest and principal on the loan. They also often include portions for taxes and insurance. Federal income tax guidelines allow homeowners to deduct all of your interest and tax payments. This provides significant tax advantages to you.

In order to claim the tax benefits of owning a home, you have to itemize your deductions on your federal income tax return. And while most people simply claim the standard deduction, itemizing deductions will usually save you money. By deducting interest and tax payments on your mortgage, your savings will be considerable.

Purchasing a home sometimes requires some initial cash for costs like a down payment, earnest money and closing costs. Some of these costs, however, can be folded in to your mortgage. Owning a home requires regular maintenance of the property, so you will need to budget for this. Still, the total monthly costs may be similar to what you are currently paying for rent.

Studies by Ginnie Mae (the Government National Mortgage Association) state that home ownership usually becomes less expensive than renting in year three. This means that if you plan to stay in the same place for at least several years, you can save money by owning a home rather than renting.

With home ownership, you steadily build equity in your property. This equity is an asset that can provide you later with financial security as well as the ability to borrow against it for things like home improvements, college tuition payments for your kids, or even for the down payment for your next home. Over time, as the interest portion of your loan payments decrease, the principal portion increases. Since the principal becomes your equity, this means that your asset grows more quickly over time.

Lifestyle. There are some non-financial factors to consider, too. What is your lifestyle like? Home ownership requires some stability. If your job requires you to move fairly frequently, renting may be a better option for you. On the other hand, home ownership provides some freedoms that renting can't: you can do as you wish with your property. You can change the decor and landscaping whenever you like. You are not dependent upon the landlord's permission to improve the property. And you don't have to wait for the landlord to get around to repairing any problems.

Part of the American Dream is to own a piece of property and grow and develop it over time. Home ownership makes this dream possible. It also makes you a very special member of your community since, as an owner, you are tangibly investing in the community. It provides you with a sense of belonging in a way that renting can not.