If you’re currently a renter, you’ve likely encountered the familiar refrain that purchasing a home trumps renting. Amidst the common arguments, such as renting being akin to throwing money away and the autonomy of homeownership, the most convincing rationale often lies in the undeniable financial advantages. So let’s see, from a financial perspective, why it is better to buy vs. rent in East Hanover and Morris County.
Rents Go Up
For many, the most compelling argument in favor of buying over renting in East Hanover and Morris County lies in the predictability and stability it offers. When you own your home, you’re not beholden to the uncertainties of a landlord. Unlike renting, where monthly payments can escalate at any moment, purchasing a home with a fixed-rate mortgage ensures consistency in your monthly payments. This stability allows you to budget for other expenses without the worry of unexpected fluctuations in housing costs, providing a sense of financial security and peace of mind.
Automatic Savings Account
While the necessity of having a place to live is undeniable, there’s some validity to the age-old notion that rent is essentially throwing money away. Each month when you make a rent payment, that money disappears without any return. However, the scenario shifts when you make a monthly mortgage payment, as you’re actively building equity in your home.
Although a portion of your monthly mortgage payment is allocated to interest, a significant portion is also applied to the principal balance of the loan. This portion contributes to your equity—the value of ownership in your home. It functions akin to an automatic savings account, with the equity increasing over time as you continue to pay down the loan. In essence, your equity serves as a growing financial asset, representing your stake in your home’s value.
Appreciation and More
Another compelling reason to favor buying over renting in East Hanover and Morris County is the potential for long-term financial gains through home appreciation. Homes typically increase in value over the years, making homeownership a lucrative investment. The average home appreciation rate is typically around 3% or higher, which compares favorably to returns on stock investments. Furthermore, if you decide to sell your home in the future, any profits earned through appreciation are often tax-exempt, providing an additional financial advantage.
Tax Benefits
As a final compelling reason to opt for buying over renting in East Hanover and Morris County, consider the advantageous tax benefits that come with homeownership. Unlike renters, homeowners can leverage deductions for mortgage interest and property taxes when filing their annual federal income tax returns. These deductions serve to reduce taxable income, offering substantial savings and providing an additional financial incentive to invest in homeownership.
Here’s an example. Suppose you purchased your home for a sale price of $300,000, with a 10% down payment ($30,000). Using fairly standard calculations, your total monthly housing cost would be about $1,700, including mortgage payment, property taxes, insurance, and mortgage insurance. Your tax deductions for mortgage interest and property taxes would save you approximately $335 per month, which would make your monthly housing cost closer to $1,400. The upshot is that, in some cases, the savings from tax benefit can make owning more affordable than renting. And there are also that automatic savings and appreciation to keep in mind.
Now that you’re persuaded of the advantages of buying versus renting in East Hanover and Morris County, perhaps you’re ready to explore the prospect of homeownership. When embarking on such a significant and life-altering purchase, it’s advisable to seek the assistance of qualified real estate professionals.
