Monday, February 21, 2011

Why You Should Buy Versus Rent

When buying or renting any house, there are always important factors to keep in mind.

Some positives of owning your own property are building equity, tax deductions, and maintaining the same housing payments. The negatives of renting would include the fact that it's less stable, there is no equity or tax deductions, and lack of freedom to remodel your rented space.

If you decide to buy, here are some key points to remember.

Spend only 28 to 30 percent of your income on housing. And before buying a house, make sure you realize your housing costs will include property taxes, homeowners insurance, and repairs. The necessity to pay for repairs can be naively ignored because repairs don't seem automatic. But with homes, there always comes a day when the toilet won't flush, the hot water heater goes out and floods the basement, or a tree branch falls on the roof. Repairs must be considered a part of the cost of owning a home; usually not of renting. And a person needs to set money aside money each month for the times when the repairs will arise.

When trying to measure the costs of homeownership versus the cost of renting a home, there's an official tool to help you. The Federal Reserve Bank of Cleveland released a Rent or Buy Calculator that runs an internal simulation of cost scenarios, for both renting and owning a home, based on the information you put in about your home and mortgage.

From the data, it will tell you how much, if at all, you will financially gain from owning a home versus renting.

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