In this day and age, you may think that renting is the best choice for long-term savings. And in some cases, you may be right! However, you might be surprised at the passive savings that you can accumulate just from living in your own home and paying off a mortgage instead of paying rent.
While renting is typically cheaper than paying a mortgage, owning a home means that you can collect equity, which is the financial stake you have in your home. If you put a down payment of 20%, then your equity will be 20% of the home’s value at closing. Each time you pay your mortgage, you gain more equity in your home until you own it outright. If you were to sell your home and you have 40% equity from paying off your mortgage each month, you will receive more money than what you paid initially on the sale of your home! But if you were paying a landlord, the rent you deliver each month will make its way into your landlord’s pocket and not back into yours, unlike with selling your home and gaining back your equity.
In addition to building equity, owning a home also means that you can refinance and potentially sell your home at a greater price in the future. Or, if you decide to stay there long-term, it would mean that you never have to worry about a landlord kicking you out or raising your rent and you can put down permanent roots. Renting does have its benefits too, however, if you’re not able to factor in the costs of maintenance, property taxes, and mortgage payments into your budget yet then renting is great for keeping a roof over your head while you save. But, if you’re able to buy a home and just haven’t yet, you should do it! You’re missing out on the equity you could be building just from owning your home and the rent you are paying each month is just going down the drain (AKA into someone else’s pockets).
Contact us at TV Idaho RE and PM if you have questions regarding home equity or renting, or just want to talk about home ownership or selling your home! We’re happy to help you in any way we can.