When it comes to being an adult, one of the most significant questions you’ll face is about housing: when should you rent and when are you ready to buy?

With the housing market fluctuating so much in recent years, this topic is at the forefront of many people’s minds.

Of course, there are pros and cons to both options, and like many life decisions, it comes down to your personal situation 

Are You Ready to Buy a Home?

Homeownership has long been considered the “American dream” and it’s no wonder – there are many benefits to owning your own home, says INB mortgage lender Bill Townsend.

You build equity: When you make mortgage payments, you’re building equity, which is essentially ownership in the property. Over time, as you pay down the mortgage balance and your home (hopefully) appreciates in value, you accumulate more equity, Bill points out. “And you may have the ability to tap into that equity to get cash for various purposes,” he says.

More control: Want to make a home improvement? Or plant a big garden? As a homeowner, you have the freedom to make improvements to your home without needing permission from a landlord. “Your house, your rules!” Bill says.

Potential for appreciation: Of course there are no guarantees, but property values historically increase. If that’s the case, you may be able to sell for a profit in the future.

Tax benefits: Homeownership offers several tax advantages that renting does not, Bill shares. “Mortgage interest and property tax payments may be tax-deductible, potentially reducing your taxable income and lowering your overall tax bill,” he says. Additionally, if you sell your primary residence for a profit (subject to certain conditions), you may be eligible for capital gains tax exclusions.

What to consider before you buy a home…

Of course, homeownership is a significant financial commitment, and not everyone is in the position to make that decision yet. So, what should you keep in mind as you consider this?

It’s likely the largest purchase you’ll ever make: Purchasing a home typically requires a down payment, closing costs, and ongoing mortgage payments, which naturally ties up a substantial portion of your financial resources.

More expenses you’re responsible for: INB mortgage lender Stacy Wolak advises individuals and families to go in to this major purchase with the understanding that there are costs other than just the mortgage. “Owning a home comes with various ongoing expenses, including property taxes, homeowners insurance, maintenance, repairs, and possibly homeowner association (HOA) fees,” Stacy shares. “And any repairs or renovations can be time-consuming and costly, especially for major repairs such as replacing a roof or repairing structural issues.”

Lack of flexibility: Want to relocate in the near future? It’s important to realize that selling a home can take time and may incur costs such as real estate agent commissions and closing costs, making it more challenging to move quickly.

That’s why Stacy works closely with her clients to ensure they have their finances in place to buy their dream home.

Is renting a good option for you?

Naturally, you may be in a season of life where renting makes more sense. “Everyone’s situation is different, and renting may be an easier route,” says Deena Smith, VP, mortgage lender at INB.

What are some of these reasons? 

Increased flexibility: If you don’t want to be tied down to a specific location, you can eliminate the tedious process of selling your house. And it’s much easier to get out of a lease than a mortgage! “When you’re just starting out and not completely sure where you’re going to want to live because of a new career and/or family, renting definitely may be the right fit for you,” Deena says.

Lower upfront costs: While renters may need to pay a security deposit and possibly a month or two of rent, these costs are generally much lower than the costs associated with purchasing a home.

Avoiding market risk: As a renter, you aren’t affected by fluctuations in property values and don’t have to try to sell your property in a down market.

No maintenance responsibilities: Water heater goes out or stove on the fritz? Simply report maintenance issues to the landlord or property management company and let them handle (and pay for) any necessary repairs.

“The opportunity of homeownership will always be there when the time is right for you,” Deena reminds potential homebuyers.

What to consider before you rent…

While there’s less commitment when it comes to renting, says INB mortgage lender Corey Kates, there are also downsides, including:

Lack of control over landlord decisions: Renters are at the mercy of their landlords, who may fail to maintain the property, make changes that you don’t like, or choose to terminate your lease and sell it.

No equity or investment potential: Rent payments go toward the landlord’s mortgage or property expenses, “so you miss out on any benefits from potential property appreciation and the chance to build wealth through homeownership,” Corey says.

Changing rent rates: Unlike a stable payment with a fixed rate mortgage, your rent will likely go up each year.

Also, if you’re renting solely in the hopes that home prices will drop, Corey says that may not be a sure bet to take.

Looking back to 1942, home prices have historically increased every year. When prices drastically decreased between 2007 and 2011, that was actually an anomaly and may not necessarily happen again.

“In the last 80 years, home values have decreased in a year only seven times. Many people are waiting for prices to crash again, but we have a quarter of the inventory available that we had in 2007, which still keeps demand high,” Corey points out. “So if you’ve found your dream home and are ready to buy, now’s the time to move.”

Footnote:

Karen Cabrera serves INB mortgage customers in the Peoria market. She’ll regularly works in the Galesburg, a community she has called home since she was five years old.