Let's take a close look at the advantages and disadvantages of renting versus buying a home.
Advantages of Renting
Mobility – the renter has potentially more flexibility, particularly in the short-term, with regard to moving. Aside from the length of the lease, a renter usually has the feasible option of moving at any time.
Disadvantages of Renting
No equity – all of the money paid to rent goes down the proverbial drain, because while the homeowner increases equity (or ownership) with each payment, the renter has no ownership in the home.
No tax advantages – the renter cannot deduct anything other than the nominal renter’s credit at tax time.
Advantages of Buying
Equity – with each payment, the buyer builds equity so that there is increasing ownership as time elapses in the life of the loan. Additionally, long before completely paying off the loan, the buyer will have amassed enough equity so that the home value exceeds the amount still owed. At that point, the buyer can make a profit after selling the home.
Tax advantages – the buyer is able to deduct the mortgage interest paid each year as well as real estate taxes paid. This substantial benefit helps the buyer essentially get back part of the payments each year, because there will either be the opportunity to have less taken out each month in taxes or to receive a tax refund for the same amount.
Disadvantages of Buying
Mobility disadvantage – During the initial few years of a mortgage loan, the buyer is typically tied to the property. Because there have not been enough payments to build equity and reduce the loan balance, the buyer will not have the reasonable option of moving at that time. However, once the loan balance becomes less than the home’s value, the buyer can move at any point.