This is the million dollar question!

There are lots of reasons to own versus rent a house, but it depends on a variety of factors. To begin the thought process, I recommend that potential buyers consult with a mortgage broker to see how monthly rates offered by different loan programs compare to monthly rents. Currently, historically low mortgage rates and affordable housing prices make right now an opportune time to buy.

Buying a home largely depends on your lifestyle and current income. Qualifying for a loan and the down payment are oftentimes the two biggest hurdles that buyers face. The next question to ask is how long do you plan to live in the house? Given the difficult economic times, I recommend to buy and own a home for at least a 3-5 year period of time. The forecast is that the next few years will see slow growth. Transactional costs are expensive, real estate is not a liquid asset, and prices may appreciate or depreciate. Buying a home requires thoughtful contemplation.

Overall though home ownership’s benefits typically outweigh the option to rent:

• Tax Deductibility—You can deduct the cost of your mortgage loan interest from your state and federal income taxes. Since interest generally will account for most of your payment during the first half of your mortgage, the savings can be significant. Some of your costs at the time of closing (including prepaid mortgage interest) can be taken as deductions on that year’s income tax return, and points paid up front at the time of closing represent additional mortgage interest and may be taken as a deduction.
• Tax Deductibility of Property Taxes—You can deduct all of the property taxes you pay.
• Appreciation Potential—Real estate is considered a strong long-term investment because it usually appreciates in value. The effects of borrowing potential can increase as the value of the home appreciates.
• Capital Gains Exclusion—When it’s time to sell your home the amount of capital gains you have to pay is reduced. A homeowner can exclude up to $500,000 per couple if married and filing jointly, or $250,000 if single or filing separately for homes that have been the taxpayer’s principal residence for the previous two years.
• Capital Gain Treatment—Congress allows preferential tax treatment on gains from capital assets held for more than one year. This would be important for a homeowner who has gains in excess of the allowable exclusion.
• Principal Accumulation—Mortgages are designed to pay the interest for the time that the money has been used, as well as to retire the principal debt over a period of time. This payment plan means that part of the payment each month is for principal accumulation.
• Personal Enjoyment—Pride of ownership is a valid reason for wanting to own a home. You can personalize your home while enjoying the financial benefits. Usually a home provides a larger living indoor and outdoor space than renting with a limited use of space.

If you are thinking of buying a house this year, please contact me to discuss your options. I can also provide the name of a few mortgage brokers to you as well. Good luck and happy house hunting!

This entry was posted on Monday, January 23rd, 2012 at 7:47 pm and is filed under Real Estate Process . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.