Ah, homeownership: So many yearn to own a mass of lumber, pipes, wires, and glass -- and possibly the surrounding land and air space. Indeed, it's best not to romanticize what will likely be the biggest financial commitment you ever make.
If you have a yen to become part of the landed gentry, the first question you should ask yourself is: Should I? (Don't ask it too loudly, or people will point.)
Here are some things you should think when resolving your renting vs. purchasing dilemma:
Why you should rent
- You don't think you'll be in the same city for more than three years. The thousands of dollars of upfront costs related to buying a house (lawyers, brokers, agents -- they all get a cut) will be wasted if you move within a short time.
- You don't want to worry about making repairs. When the toilet explodes, it's the landlord's problem, not yours.
- You don't want to take on a mortgage. Borrowing tens of thousands of dollars to purchase a home can put a lot of limits on you for a long time. However, if you rent, you're free of that enormous debt.
Of those points, the first one is the most important. If you're the ramblin' type -- moving from town to town, breaking hearts along the way -- then buying a home may not be worth the time and money.
Now let's look at the other side of the housing coin.
Why you should buy
- Your monthly housing payments line your pockets, not the landlord's. A house is (usually) an appreciating asset, i.e., your house will probably increase in value. That means you may make a profit when you sell the house. Also, you can use the equity in your house for tax-deductible loans. And speaking of taxes ...
- You get a sizeable tax deduction. Uncle Sam likes homeowners -- they make for a more stable country, or something like that. Anyway, to encourage ownership, Uncle Sam allows homeowners to deduct the interest on their mortgages and other related costs from their income taxes.
- Your housing payments are fixed. Assuming you get a fixed mortgage, your housing payments will not change for as long as you own the house. If your mortgage is $1,200 a month now, it'll be $1,200 a month 15 years from now. On the other hand, if you're renting your residence, your rent check will probably increase every year, to where it could be 30% to 50% more 15 years down the road.
- You love worrying about repairs. When the toilet explodes, there goes your Saturday (after you explain to your kids that flushing Fluffy down the john is not a proper burial for a deceased hamster).
- You own the place. Put Velcro on the ceiling. Carpet the bathtub. Prune your bushes into the shapes of candy canes. Hang so many pictures that no one could guess the walls' paint color. Go crazy -- it's your house!
More fodder to consider as you ponder your housing needs:
- How Much Home Can You Afford?
- 60-Second Guide to Managing Your Mortgage
- 60-Second Guide to Disaster-Proofing Your Home
This article originally ran during the real-estate run-up in April 2007, and our advice still stands. The Fool has a disclosure policy.