Are you really throwing money away? Depends. Renting, you do not get anything back. All that money goes in someone else's pocket. (see graphic) Buying, on the other hand, a portion of your payment goes towards your equity. But that takes a long time to build up since the first years of your mortgage, most of your payment goes to interest. With purchasing a home, there are costs up front like closing costs and other fees. Plus, once you are in your home, you have expenses - repairs, taxes, insurance.
On the other hand, owning has its definite advantages. First, if you itemize your income tax, you can deduct taxes and interest (up to a certain amount). Second, your home could (and likely will) appreciate in value. Buy a house for $150,000 and in 10 years it could be worth $200,000 - or more. [not guaranteed though]. Third, when you sell your home, you may not have to pay capital gains taxes on up to $500,000 (for a married couple) on the gain in value from the time you purchased the home. It is recommended you stay in your home or at least 5 years to benefit.
Timing your purchase is critical also. Interest rates and rising or falling home prices can influence your financial outcome and affordability of your home.
Some think they cannot afford to buy. It is hard for many, if not most to stash away enough for that 20% down payment. But wait, there are lots of programs out there that allow a much smaller down payment - in some cases 3-5%. And depending on your household income, there are even down payment assistance programs through the city or state.
Finally, a concern for some is their credit. Credit card debt, student loans, late payments and other things can cause your credit score to plummet. Having a good credit score is necessary to get a mortgage. That should not be what is keeping you from buying. There are programs out there that can help you get your credit score up to a good number. And if you check your credit report, you can see what is keeping your score low and start working on those things. There may even be errors in your credit report that can be remedied. Get your free credit report at http://www.annualcreditreport.com.
Not sure what works for you? Talk to a licensed Realtor® who can help you see what options you have and how to best buy a home.
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