3 Reasons Buying May Be Better Than Renting

Tracy Elsen
August 29, 2016


Why it Might Be Better to Buy Instead of Rent

You've been hearing about the benefits of buying a home from your best friend who just closed on a starter two-bedroom in an upcoming neighborhood with a café on the corner and a garden out back. Rent vs. buy is suddenly at the top of your mind. Being the master of your own universe sounds like a dream, and apparently there's also the ability to build equity and get tax breaks and a bunch of other great financial stuff. But here you are, just making ends meet as a renter. Should you really be thinking of buying a home?

If you've asked yourself that question, you're not alone. Thanks to the 2008 financial downturn, student loan debt, and stagnant wages, fewer people are entering the homeownership market. But because so many have stuck with renting, higher demand is driving up the cost to rent. A report by Harvard University's Joint Center on Housing Studies found that the share of renters paying more than 30 percent of their income on rent—those that are "cost burdened"—is at near-record highs, with almost half of all renters in the U.S. falling into that category. 

So despite the conventional wisdom that renting is more affordable, buying a home can actually be a way to escape those rising rents and lock in your payments at a price you choose. Plus, there are tons of other benefits. 

Hello, Bigger Tax Refund for Owning a Home

Imagine if you could deduct a portion of your rent from your taxes every year. That would be awesome, right? That's how homeownership can work. You may get to deduct all of the interest you pay on your mortgage, for mortgages under $1 million (check with your tax advisor for details). And the other portion of your monthly mortgage payment, the principal, reduces your debt and builds equity. More on that in a minute.

Plus, the government is always coming up with new ways to give homeowners tax benefits, like the Renewable Energy Tax Credit. If you install equipment that uses renewable sources of energy, such as solar or wind, you may be able to get back up to 30 percent of the installation cost. As a renter, your only option for renewable energy is opening the windows in hopes that you’ll get a cross breeze. And there’s definitely no one trying to give you money for that.

Building Equity in a Home (and What That Actually Means)

Everyone says that by renting you’re basically throwing your money away (everyone but your landlord, that is). But what does that actually mean? When we talk about homeownership building equity, we mean that as your mortgage payments chip away at your principal, the more of your house you actually own. And the more of your house you own, the greater your personal assets are. Having greater assets can allow you to take out loans at favorable rates so you can build a tropical oasis, complete with waterfall and pool in the backyard someday, or knock a few other things off your bucket list.

Owning can also serve as a great savings tool. You know how hard you're planning to work to save up for that down payment? Owning your home does the work of saving for the down payment on your next house for you. Any surplus you have when you decide to sell can be used to put a higher down payment than you had this time around on your next home.

You Can Actually Afford a Down Payment

Okay, so the big question remains: How is it possible to save up for a down payment when you're busy paying all of that rent? You may have heard that a lot of banks require at least 20 percent down. A quick real estate search in your dream neighborhood and some simple math can totally freak you out when you imagine trying to save up all that cash.

Don't let that discourage you—there are alternatives to the 20 percent payment. First time homebuyers may be able to take up to $10,000 out of their IRA without penalties to buy a house. Plus, there are some types of mortgages, like loans from the Federal Housing Administration, U.S. Department of Agriculture and the Department of Veterans Affairs, that require way less than 20 percent—as low as 3.5 percent or even no down payment at all.

Consider the benefits of owning real estate as your first step to buying a home.

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