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Renting vs. Owning: How Homeownership Can Supercharge Your Financial Future

Elise Jansen, CMA,  Sr. Mortgage Advisor

July 24, 2023 — 9 min read

How Homeownership Can Supercharge Your Financial Future

Trying to decide between renting or owning a home is a difficult dilemma, but not impossible—in fact, in our current competitive market, close to 35 percent of the U.S. population rent a living space!

This statistic highlights the prevalence of renting as a viable housing option for a significant portion of the population; however, it's essential to recognize that homeownership presents unique opportunities that have the potential to “supercharge” your financial future and set you up for long-term success.

By carefully weighing the benefits of renting against those of owning, you can make an informed decision that aligns with your current long-term financial goals. Let's explore the most important factors together and delve deeper into how homeownership can provide a solid foundation for wealth accumulation for generations to come.

Examining the Benefits of Homeownership

Purchasing a home is a significant financial commitment that demands careful consideration and serious thought about where your life is headed. Whether it's evaluating your career prospects, assessing your family plans, or envisioning your desired lifestyle, considering these important factors will ensure that your home purchase becomes a strategic investment that supports your life goals.

Homeownership is a catalyst for wealth building.

There’s a strong correlation between homeownership and wealth accumulation, with each year of homeownership tending to be associated with an additional $9,500 in net worth, on average, according to Habitat for Humanity International. Furthermore, U.S. homeowners have an average net wealth that is 400 times higher than that of renters with similar demographics and earnings.

With each mortgage payment, you are gradually building equity—the difference between the value of your property and the amount you owe on it. Over time, as you pay down your mortgage and your property appreciates in value, your equity grows, transforming your home into a valuable asset. This equity can be leveraged in various ways, such as obtaining loans for educational expenses, starting a business, or funding retirement.

RELATED: 4 Easy Ways to Build Home Equity

When you own a home, you gain a sense of permanence.

Unlike renting, where you’re largely subject to the whims of landlords or the uncertainties of lease agreements, owning a home provides you with a solid foundation—a place that is truly yours. This stability not only offers peace of mind but also allows you to establish roots, build lasting relationships with neighbors, and create a nurturing environment for yourself and your loved ones.

Homeownership gives you the freedom to personalize your space.

Unlike rental properties, where you may face restrictions on modifications or have limited control over the aesthetics of your home, owning a property allows you the creative freedom to make it truly your own. Whether it's renovating the kitchen, adding a backyard garden, or painting the walls in your favorite colors, homeownership gives you the freedom to express your personality and create a space that reflects your unique style and taste.

How Homeownership Can Supercharge Your Financial Future

Owning a home can provide tax advantages.

Depending on your location and circumstances, you may be eligible for deductions on mortgage interest, property taxes, and other homeownership-related expenses. These tax benefits can help reduce your overall tax liability and provide some financial relief.

One of the most notable tax advantages of homeownership is the ability to deduct mortgage interest payments. In many countries, including the U.S., the interest you pay on your mortgage is tax-deductible, up to a certain limit. This means that a portion of your monthly mortgage payment can be deducted from your taxable income, effectively lowering your tax burden. Over the course of a year, these deductions can add up to substantial savings, allowing you to keep more money in your pocket.

Homeownership can foster a sense of pride and accomplishment.

Owning a home represents much more than a mere financial investment. It is a meaningful milestone in life that serves as a symbol of your hard work, dedication, and achievement. Each room holds the potential for creating lasting memories, from family gatherings around the dining table to cozy evenings by the fireplace. It is within the walls of your home that you witness the growth of your children, host joyful celebrations, and find solace after a long day.

Exploring the Advantages of Renting

While homeownership often takes center stage in discussions about housing, it is important to recognize that it’s not appropriate for everyone at every stage of life.

Flexibility is a key advantage of renting. Unlike homeowners who are tied to a specific property and location, renters have the freedom to move more easily. This flexibility can be especially beneficial for individuals who anticipate changes in their personal or professional lives, such as job relocations, career advancements, or the desire to explore different neighborhoods or cities.

Renting also offers a reduced level of responsibility when it comes to maintenance and repairs. In most cases, the landlord or property management company is responsible for ensuring that the property is well-maintained and addressing any necessary repairs. This relieves renters from the financial and time-consuming obligations that come with homeownership, such as property upkeep, renovations, and unexpected maintenance expenses.

Additionally, while purchasing a home often requires a significant down payment, renting typically involves a smaller upfront financial commitment. This is usually in the form of a security deposit and sometimes the first month's rent; it can make renting a more accessible option, particularly for those who may not have substantial savings or who prefer to allocate their finances toward other goals.

Ready to Become a Homeowner? Assessing Readiness & Responsibilities

Before embarking on the journey of homeownership, it is crucial to assess your financial readiness. This involves evaluating factors such as your credit score, savings, and overall financial stability.

Credit score. This plays a significant role in determining your eligibility for a mortgage and the interest rate you will be offered. Lenders consider credit scores as a measure of your creditworthiness, reflecting your ability to manage debt and make timely payments. It is important to review your credit report, address any discrepancies or issues, and take steps to improve your credit score if necessary.

Remember: A higher credit score not only increases your chances of obtaining a mortgage but also provides access to better interest rates, which can result in substantial long-term savings.

RELATED: Cracking the Credit Code: How to Craft an Impressive Credit Score and Maintain It

Savings. In addition to your credit score, savings are a vital component of financial readiness for homeownership. Saving for a down payment is typically required when purchasing a home, and having a larger down payment can offer advantages such as lower mortgage payments and potentially avoiding private mortgage insurance (PMI). It is important to carefully consider your savings and determine if you have enough funds for a down payment, closing costs, and other related expenses, such as moving costs and initial furnishing.

RELATED: Understand Closing Costs: Planning for the Financial Aspects of Homeownership

How Homeownership Can Supercharge Your Financial Future

RELATED: How Much Does It Cost to Furnish a House?

Overall financial stability. Finally, assessing your overall financial stability is essential—homeownership comes with ongoing financial responsibilities beyond the initial purchase, including property taxes, homeowners insurance, and maintenance costs. It is essential to have a clear understanding of your monthly budget and ensure that you can comfortably afford mortgage payments and other homeownership-related expenses without compromising your overall financial well-being. Consider factors such as job stability, income level, and the presence of an emergency fund to provide a safety net for unexpected expenses.

RELATED: Homeownership Calling: Indicators That You're Ready to Settle Down and Buy a Home

RELATED: What Does Property Tax Pay For? Here’s Where Your Money Goes

Maintenance and repairs. Maintenance tasks can range from routine upkeep, such as lawn care and cleaning, to more significant repairs and renovations; it’s essential to factor in the costs associated with these responsibilities and allocate funds accordingly.

RELATED: Drought-Tolerant Landscaping to Reduce Lawn Maintenance

Some homeowners choose to set aside a portion of their monthly budget for ongoing maintenance, while others opt for home warranty plans to help cover the costs of unexpected repairs. From coordinating repairs to managing renovations and upgrades, being a homeowner involves taking an active role in maintaining and improving your property. It is important to assess your availability and willingness to dedicate time and energy to these responsibilities or consider hiring professionals to assist when needed.

RELATED: What Borrowers Should Know About Home Warranties

Loan Products for First-Time Homebuyers

Some renters may feel hesitant to enter the housing market right now due to concerns about high home prices, while others believe that saving a full 20 percent for a down payment is the only way to buy a home. However, the truth is that there are various loan products available that can make the decision between owning and renting much simpler.

RELATED: Do I Really Need 20% Down? Low and No Down Payment Mortgage Options

FHA loans. For those with less-than-perfect credit, FHA loans backed by the Federal Housing Administration provide a solution. With a credit score of 580 or above, you can secure a home loan with just a 3.5% down payment, significantly increasing the accessibility of homeownership. Click here to learn more. (PRM will only approve loans under a 580 credit score by exception)

VA loans. If you or your spouse are a current or former member of the U.S. Military, you have the opportunity to obtain a loan backed by the U.S. Department of Veterans Affairs. These loans do not require any down payment and are available to individuals with below-average credit scores as well. Click here to learn more.

Conventional loans. Buyers with solid credit can benefit from conventional loans, which typically offer the lowest interest rates. Even with these loan programs, a down payment of just 3% is required, making the path to homeownership even more accessible. Click here to learn more.

Down Payment Assistance. These programs are designed to provide financial aid specifically for down payment and closing costs, helping to bridge the affordability gap. They can come in the form of grants, forgivable loans, or low-interest loans, depending on the program and eligibility criteria. They vary by location and may be offered at the federal, state, or local level. Click here to learn more.

Expertise to Make Your Dream Come True

Don’t let fear of home prices keep you locked into renting—reach out to talk with your neighborhood Mortgage Advisor today, or click here to explore other recent blogs.

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