At some point, the question arises whether it is better to continue to rent a property or buy your own home. This is a major life decision and must be looked at keeping several factors in mind.
Affordability: Even with the gradual recovery of home values since the beginning of 2012, the National Association of Realtors (NAR) Housing Affordability Index demonstrates the near record low cost of buying a home, particularly here in Massachusetts. Fannie Mae & Freddie Mac mortgage rate data have reported mortgage rates in an historically low range for months, so the long term investment opportunity may never be better than it is right now.
Tax Benefits: There are also significant tax benefits from owning a home due to the mortgage interest tax deduction. The Mortgage Buddy recommends talking to an accountant about the specific benefits of your situation, but the following Ginnie Mae chart can provide you with some generalities.
Equity Building: From Home to Piggy Bank
Trying to save money has become more difficult when the cost of food, fuel, and education continues to increase, but the “forced savings” created by home ownership makes that savings account attainable. When you make a mortgage payment, a portion of each payment goes toward the principle and a portion will go toward the interest. Each monthly mortgage payment that you make creates in effect a “forced savings”, meaning that a portion is going to pay down the principle owed, thereby building equity. Equity is the difference between what you owe on your mortgage and what the property is worth. If your property is worth $200,000 and you owe $150,000, then you have $50,000 of Equity. Equity is only truly realized upon the sale of the home.
Buying at or near the bottom of the housing market, as is the case now in Massachusetts, lowers the risk of your home depreciating in value, and losing equity. Buying now means more opportunity for “forced savings” (i.e. equity building) because we are at or near the housing bottom, and therefore, closer to an up-swing in home values.
Stable Housing Payment. Buying a home and getting a mortgage with a fixed interest rate will allow you to know what your monthly housing payment will be for the next 30 years. Rent, however, can increase every year, and is under someone else’s control. During the last 30 years, the cost to rent in Massachusetts has increased 52%.
Intangibles. Several factors that should be taken into consideration are hard to quantify – pride of ownership and becoming settled in a community – are what generally tip the scales in favor of home ownership.
Mortgage Buddy Tip: There are many online calculators and formulas to show financially whether renting and owning a home is financially better. But, just because everyone says “it’s the best time to buy” does not necessarily mean it is the right time to buy for you. You will know when you are financially and personally ready to jump into home ownership. When you decide it’s ready The Mortgage Buddy will be here to help.