Factors to be considered:
TIME
• Renting: Renting the house should be considered if you are a frequent traveler and you are sure that you won’t stay in the house for more than a couple of years. Due to the overhead expenditures involved, buying the house for a shorter time makes a bad financial deal.
• Buying: As opposed to renting the house, buying a house is good if you wish to reside in it for the long term. In fact, if you consider a longer time, remember that property value only appreciates with time which makes it a good option. The costs that you will have to incur can easily be spread to several years which you will be spending in the house.
SAVINGS
• Renting: If you don’t have enough savings accumulated through various sources, it’s better for you to opt for renting of the house.
• Buying: Earlier, people could buy houses on mortgage at a down payment of even less than 20%, but the mortgage companies have become very strict with these issues now. So more savings are needed for buying the house. In a way, this is beneficial to the homeowners as most of the time, due to lighter control; they assume too much risk and run into a debt trap.
CASH INFLOWS AND OUTFLOWS
• Renting: If your income is unstable, you can opt for renting the house. The rent, obviously, is dependent on many factors like the locality of the property and the terms of the landlord. Also, during the term of your stay, the rent can be increased several times. A primary reason behind renting is that if the rent is less than 2/3rd of the monthly expenses, then you can use the remaining money for other investment or work purposes.
• Buying: Mortgaging ensures that you can make the payment as long as the loan continues, or opt for a loan refinance. If you opt for buying a house, you are always certain about how much money you have to pay regularly. The overhead expenditures are: mortgage payments in a month, insurance of homeowners, property tax, and various other expenses. On an average, about a third of your income will be spent on the house expenses and taxes. However, a mortgage will not be given to you if the housing expenses cover more than 40% of your income. You may quit paying the mortgage companies, but the housing overheads will always remain as long as you are the homeowner.
TAXES
• Renting: In case you go for renting of a house, you have almost nil tax liability, as all that burden falls on the landlord. You can consult your tax advisor for more details on this matter.
• Buying: In case you are an owner by virtue of buying the house, you will have to pay the property tax as a tax liability. You, however, have an option to deduct the taxes from the interest paid on mortgage. Upon selling a house, a capital gain tax exclusion of $500,000 is made available to a married couple, and in case of an individual, it is $250,000.
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