When It’s Right to Buy

BUY OR RENT?

This question still comes with as much excitement as it does stress. While the traditional answer has always been to buy, many make the case that in today’s market it’s actually best to rent.

With rising interest rates nationwide, the latter can appear to carry some weight. But keep in mind – if you want to buy a home, your interest rate is one of many factors.

DON’T BELIEVE THE HYPE.

Mortgage calculator sites are a good place to see what ballpark you are in with various home prices and start crunching numbers, but they can only get you so far. Real estate sites, Zillow and Trulia include calculators that factor in a wide range of information, from your purchase price and available down payment to your projected mortgage payments and property tax.

These sites also make an effort to go deeper than others and include information like projected sales proceeds, closing costs, and maintenance. However, all of the calculations rely on assumptions as well as hypothetical figures and include disclaimers explaining that they should not be used as the sole source of information. Very large differences can materialize between these figures and what a professional can actually do for you.

THE TIME TABLE.

An important, but often overlooked matter to address early on, is how long you plan on living in the home. If you’re always on the move, it may be safer to rent. But if you plan on sitting put for at least a few years, it’s very likely that buying is in your best interest. In most cases, more time spent in the home works to your benefit, as your costs are spread out over time.

Here, it becomes that much more important to have emergency savings account in addition to your personal account. While purchasing a home is one of the more gratifying experiences in a person’s life, the home itself can bring surprises, like the need for a new roof.

MONEY TALKS.

One of the primary benefits to homeowners is that any return on homeownership, or “imputed rent,” is excluded from taxable income, unlike returns from other investments. Taxpayers who buy are also able to deduct their property tax payments as well as their mortgage interest, rather than having this source of income taxed. The capital gain from the sale of a home can also be excluded from your taxable income.

While there are many tax-related benefits to owning a home, it still behooves you to not rely on your return to make ends meet. Putting your eggs in this basket is often presented as one of the cons of homeownership, but should be treated only as one of many factors, rather than a deal maker or breaker. Doing your due diligence in making sure you bring home enough for your mortgage and other homeownership costs to occupy around 35% of your gross income, as well as a rainy day fund, are both prudent.

LOCATION. LOCATION. LOCATION.

Sometimes renting can help you live in a neighborhood you otherwise wouldn’t be able to live in for the short term. Conversely, if the rent in your market is especially high, it may make more financial sense to buy.

ASK AN EXPERT.

Something this important deserves attention from the right people. As both tax and mortgage specialists who can help you calculate your true cost/benefit from homeownership, our office is the go-to place for your largest investment.  We’re here to help.