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Conventional wisdom says it’s better to buy a home than rent one. This is true in most cases, but not in every case.

Comparing buying to renting is more complicated than you might think. However, there are a few easy guidelines to aid in your decision. Buying a home is usually more beneficial than renting, except when:

  • You intend to move within a few years
  • Your rent is very low
  • You don't expect to live more than another 15 years

Building equity vs. “throwing your money away”

It’s often said that by owning a home, you’re not throwing your money away on rent. This may be true, but when you buy a home you will still spend money on things that don't build equity. These include:

  • Closing costs
  • Interest on your mortgage
  • Property taxes
  • Property Insurance
  • Private Mortgage Insurance (if your down payment is less than 20%)
  • Maintenance

In fact, these “throwaway” expenses can add up to more than you’d likely spend on rent. If the only financial advantage to buying a home were building equity, that wouldn’t be enough to offset these expenses, and it would be better to rent. The real reason buying is usually better than renting is not simply that you avoid throwing money away. It's because:

  • You lock in your monthly payment for 15 or 30 years; if you rent, you typically have to pay more each year.
  • Your house gets more valuable over time.

Freezing your monthly payments is the real advantage over renting. This is the gem that makes buying a home worthwhile. There are a couple of other advantages as well:

  • You can deduct mortgage interest on your income taxes.
  • You can stop making payments when the loan is paid off. This doesn't get your costs down to zero, however; you still have to pay taxes, insurance and maintenance.

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