suburbhouse.jpgOwning a house is an American dream, and let’s face it; we all need a place to stay and call home. How about buying or renting a house? Buying a house is not just an investment, it is a personal commitment. With the recent turmoil in the housing market, people are again weighing the pros and cons of owning a home.

There are many elements to consider when deciding whether to rent or buy a home. Buying a home is a very good long term investment. While short term appreciation will be negligible, as mortgage payments usually go to paying for the interest rather than repaying the loan, long term price appreciation is certain.

Home owners usually tell renters that they are “throwing away their money” or “pouring money down the drain”. While this advice usually encourages people to borrow heavily so they can get on the property ladder, is this advice still sound?

Having and owning your own home is a great feeling. Want to paint your bedroom neon pink? Sure go ahead, it’s your house. Or do you want to put in a sauna after you renovate the master bathroom? No problem. You are at liberty to do anything you want to do. You do not have a landlord to answer to. However, don’t assume that just because you are your own landlord, you won’t have other people to answer to. Loud music, boisterous parties, lack of maintenance or having an eye-sore of a yard can wear out your welcome in your neighborhood.

There are also significant tax incentives when you own your own house. The interest you pay on your mortgage is tax deductible, as it’s considered real estate property tax. You can itemize your tax deductions each year and benefit from this since traditionally the amount of mortgage and property taxes is more than enough to allow this exemption. Also, if you have owned your home for at least two of the last five years, and has been your “primary residence”, you can have $200,000 to $500,000 (depending on your marital status) from the the sale of your home excluded from being taxed when you sell your house.

Another thing to consider when you buy instead of rent a home is that mortgage payments are fixed over a period of time. Unlike rent, which often goes up each year and you’ll always have to pay, a mortgage eventually ends.

The cost of living in a metropolitan area is high. Loan rates and property prices are also moving up. With this scenario, is it better to rent or to buy a home?

Home buyers tend to underestimate costs. Other expenses like insurance, maintenance costs and real property taxes when added to mortgage payments can easily exceed the cost of renting the same property, even after tax breaks.

When something breaks or leaks in your house it will be your responsibility to fix it. There is no landlord who will call the plumber to fix the dripping faucet, or call the electrician to repair the busted fuse box. When something goes wrong, and it will, it will be all your responsibility to fix. All homeowners will tell you that repairs and maintenance are a significant cost. You must either have enough monthly income, savings or a home equity credit line to fix the unanticipated problems that usually come with owning a home. These repairs, maintenance and service are always there but usually unexpected.

Before buying a home, you have to be absolutely sure that you can afford to pay it for the extent of the mortgage. Remember that until you make your last payment, the bank that holds your mortgage owns the house. If you miss payments or encounter financial difficulties, the bank has the legal right to foreclose your property and force you to sell it.

Although there is no investment more certain to appreciate over time than buying a home, always remember that there is no guarantee that your home will increase in value. While real estate prices have shot up over the recent years, they are starting to settle down once again, and in some places are facing a decline. Be realistic. Don’t expect to purchase your home and in two to three years have $50,000 in price appreciation. Short term fluctuations in the real estate market can sometimes leave you owing more than your house is worth.

You also cannot just sell your house at anytime. Should your situation change, for example, having to relocate for a job, and you need to sell your house, it may take several months. Homes have been staying on the market for much longer before being sold. Your house is not a liquid investment that can be changed instantaneously to cash when you need it.

Both these options are open to all. The satisfaction of having your own home, deciding which color scheme you want for your living room, or simply having the option to pack up and move when the next door neighbor becomes too obnoxious can appeal to anybody. The most important thing to remember before deciding to buy or to rent is to do your research. Real estate properties in most areas differ in prices. A market that is hot today may not be so buyer friendly in the future. Figure out your budget, plan ahead of time, estimate future earnings, and consult financial managers for assistance. Both buying and renting present an important financial decision because either way you are risking a significant amount of your income.

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