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Renter’s Regret

I am starting my career and my family, and I want to find a permanent home. But I am not sure if I want to buy or to rent. Generally speaking, is it better to rent or buy your home?

There are good arguments for both renting and buying your home and, but the answer will depend heavily on your personal financial situation, your long-term goals, and where you are living. Let us take a moment to examine the arguments for both options, as well as a few of the factors that may help you decide on your choice.

Traditionally, it has been understood that buying a home is better than renting it. This is reflected in the fact that the majority of Americans – 63.4%, to be exact – own their homes. But that rate is the lowest it has been since 1967, a fact that reflects both economic realities and the changing perception of the value of home ownership.

Buying a home is a major investment. You will almost certainly need to get a mortgage, which is a large collateralized loan. In the world of loans, collateral is something that the borrower puts up to mitigate the risk of the loan. If the borrower fails to pay what they owe, they forfeit the collateral. In a mortgage, of course, this process is called foreclosure.

No loans are risk-free for either party, but mortgages often represent a fairly healthy sort of debt. The government prefers its citizens to own their homes for a variety for reasons, and they support home buyers with programs like USDA home loans (which require no down payment) and tax breaks related to homeownership and mortgages.

Taking out a loan and buying a property will leave you with mortgage payments, of course, but paying these every month can be seen as more productive than paying rent. After all, you can eventually finish paying off a mortgage. And when you own your home, it represents equity. Your home is yours, which means that each mortgage payment you make represents a slice of the value of a home you can eventually choose to sell. Rent payments are merely an expense, but mortgages are payments on an investment that – with the help of the real estate market – could actually grow in value. This is why few people panic when they hear that Americans hold a total of $9.8 trillion in mortgage debt.

Of course, for your home to appreciate, you will have to keep it in good shape. And that means that you are responsible for maintenance, repair, and upkeep. That can mean a lot of research and some risks. For instance, some plumbers still dig large trenches and disturb your property when they make repairs – a technique that the experts at Miranda Home Services tell us “is very expensive, very destructive, and rarely needed anymore.” Homeowners that make costly mistakes like hiring poor contractors are on the hook for the related expenses.

For renters, there is no need to worry about most of these things. Repairs and maintenance are the landlord’s concern. So are liability issues, insurance premiums (except for renter’s insurance, which is relatively affordable compared to the sorts of insurance policies homeowners will need), and property taxes – all expenses that are associated with property ownership.

In general, home ownership is a good idea because it represents an investment that can grow. But money can also grow in other ways, such as through the stock market, so locking it up in one asset (and spending it on insurance, repairs, and taxes) is not always the best idea. Your choice to buy a home depends a lot on your finances, the price of home ownership in your area, and your region’s tax situation. For example, 72.1% of Alabamans own their own home, while just 52.9% of New Yorkers do.

“It’s easy to underestimate the real cost of home ownership,” Suze Orman