The American Dream is to own a home, but lately, more and more people are opting to rent a home instead of buying one. Renting a home has fewer upfront costs because it does not require a down payment. It’s more flexible – after your contract is up, you can just leave. You also don’t have to pay property taxes, and renters insurance is much cheaper than homeowners insurance.
So, if renting has become so popular recently, is homeownership still the American Dream? More so, what is the benefit of owning a home versus renting one?
The Benefits of Owning a Home
There is no return on investment for renting a home. You just get to stay there through the end of the month. However, you get a substantial return on investment for paying a mortgage because you get to keep the home.
There are three primary benefits to owning a home: it’s less expensive, you have control and it’s a source of money. In addition, there are various social benefits, like a stable schooling experience for your kids or consistent friends for yourself.
It’s Less Expensive
Rent payment and mortgage payment prices are relatively comparable for a house of the same size in a certain location. The primary difference is that rent payments go to your landlord and you gain nothing from paying them. When you make mortgage payments, the money pays off your loan and you’re building equity in your home. All the money you spend on mortgage payments brings you closer to completely owning your home and no longer making mortgage payments.
On that note, depending on whether you get a 10-, 15- or 30-year mortgage, you don’t have to make monthly payments anymore once that time frame is up. You will outright own your home. Even if you move, you can sell the home and buy another for the same value to avoid another long mortgage or more rent payments.
You’re in Control
You have complete freedom on how you paint or decorate your home – unless you belong to a homeowners association in which case, they might have regulations on the color and preservation of your home. However, you do not have to purchase a home with a homeowners association. Additionally, it will be up to you to decide if you want pets, not the landlord.
You have more control over your home life when you own the home. You don’t need to answer to a landlord or fear rent increases. You don’t need to worry about your landlord selling the property leaving you scrambling to find a place to live. And you don’t have to wonder about when your landlord will make major repairs. Your mortgage is a fixed rate; therefore, you always pay the same amount. You have complete control over everything else.
You can stop moving from place to place at the end of your lease terms. It’s inconvenient to take time to pack up your life into a moving truck and then unpack it somewhere else. You probably have to take time off work or at least pay for the moving van. The process is exhausting. When you own your own home, you have stability and will not need to pack up and go unless you want to.
It Will Earn You Money
While there is no tax break for renting, you can claim the interest and property tax portions of your mortgage as an income tax deduction. This can be a huge deduction because interest payments are a large portion of what you’re paying in your first few years owning the home. You can also claim your origination fees (part of your closing cost) in the first year you own the home.
Homeownership is one of the few solid investments. Cars depreciate and stock prices are unpredictable. Savings accounts garner minimal interest returns. However, homes hold their value. Even when the market is depreciating, homes hold a lot of their value and will begin to appreciate again once market conditions stabilize.
It can be scary to invest your savings into a down payment for a home, but rest assured, you will have that money if you need it. You can always take out a line of credit against the equity you’ve built on your home to pay for emergency expenses. It’s like your money is sitting in the bank.