We have become a society where calling for a ride-share is more convenient than driving. Where having groceries or dinner delivered is a preferable choice to shopping or cooking. Where some would rather lease a car than buy. This thought process has spread to living spaces where younger people would rather spend their money renting than buying a home. These options may have some short term convenience and benefits, but there can be some long-term costs.

Pew Research indicates that more people than ever are renting. There are about 37% of us who are renting. The younger generation includes the largest groups of renters, with 78% of those under 25 choosing to rent. By contrast, the largest group of homeowners is those who are 65 and older.

Some may feel they have to rent because they don’t have the down payment, they don’t have established or good enough credit or that they should wait until they are married before buying. While it can be easy to find or create excuses to continue to rent, there are five major reasons it is always better to buy than to rent.

1. Builds Credit

Perhaps nothing is as significant in building good credit than homeownership. Getting a mortgage and making timely payments can have a significant positive impact on a credit rating. Lenders view homeownership as a form of stability and owning a home can help in other areas when it comes to credit.

Once you are buying a home, for example, you may qualify for lower rates on automobile loans or credit cards. Homeowners take on other obligations like utilities, insurance, and property taxes. This is viewed by creditors as responsible behavior. Lenders love lending to stable borrowers.

It is important to note that one doesn’t have to be married to purchase a home. More singles than ever are getting into homeownership. As many are waiting longer to get married if at all, they can still enjoy the benefits of owning their own homes. While singles may not have the advantage of dual incomes, and homes purchased may have to be more modest, it is still a solid way to build credit.

2. Builds Equity

Equity is the difference in the value of the home and what is owed on it. It is one of the most compelling reasons to pursue homeownership over renting. Renting, for example, builds no equity for the tenant. Money paid goes directly to the investment property owner, where he or she takes advantage of the equity building process.

Let’s say that a home has a value of $250,000 and the owner owes $225,000. The homeowner would have $25,000 in equity.

Equity builds in a home or property in several ways.

  • Reducing the amount that is owed on a house. From the outset, mortgage holders generally start with some equity in a home. This initial equity can be achieved by negotiating a good deal on a home that may be below its market value. A down payment will also usually immediately contribute to equity in a home. Let’s say that a home is valued at $250,000 and the buyer negotiates a $240,000 purchase price. If the buyer puts down a $40,000 down payment, they will immediately have $50,000 in equity in the property. Monthly payments also reduce the loan amount and build equity. Equity builds slowly at first but should increase with each payment. While most of a home’s initial payments go toward interest, more and more of each payment eventually goes to paying down the principal.
  • Improvements to the property. Every improvement made to a home should improve its value and build equity. Investing in new windows, new doors, flooring and kitchens and baths will not only enhance quality of life and improve security but increase value and equity. Homeowners who can perform their own upgrades can take advantage of their skills to build equity even faster.
  • Homeownership is a natural barrier to inflation. If inflation rises, home value invariably rises as well. Renters have no such barrier. In fact, in inflammatory times, rents can skyrocket with little recourse or benefit to renters.
  • Increases in property values. Beyond inflation, a home’s value can increase for a variety of reasons. A new school may be built in an area or a major employer might come to a community. These can make a property more desirable and valuable, thus increasing equity.

Equity is so valuable for multiple reasons. It adds to an owner’s net worth. Equity can be tapped into for major home improvements or for other purposes. Equity is, in essence, a savings account that can be used for a variety of future purposes including retirement. You can only build equity in a property through ownership, which is another reason it is always better to buy than to rent.

3. Provides Tax Benefits

Many of the provisions in the tax code have been steered toward encouraging and supporting homeownership. Not only are their tax benefits for the amount of interest paid on a mortgage but there are multiple tax benefits when paying property taxes, like adding solar panels and other improvements. These are tax benefits simply not available to those who choose to rent. Tax benefits can change from state-to-state and county by county, so it can pay to discuss your situation with a tax advisor to fully understand the specific benefits for you.

4. Loans Rates Are Low.

While this is not always the case, we have experienced extremely low-interest rates for an extended period, with no end in sight. Those who are even remotely considering the purchase of a home should do so when rates are so attractive. There are two different ways to demonstrate just how impactful interest rates can be in determining the price you can pay for a home.

The first is to take a look at just how much house one can buy if they can afford $1,500 a month for payments. For our sample, we will use both the lowest (about 3.5%) and highest (about 8.5%) that we have been witness to in the past 20 years. At the 3.5% interest rate, a buyer could purchase a home with about a $335,000 price tag for $1,5000 per month for 30 years. If one had to borrow at rates of 8.5%, they could only purchase a home for $195,000 with similar payments for the same 30 years. In essence, a buyer could purchase a $335,000 home if they borrow at 3.5% vs $195,000 if they borrow at 8.5%. That means a difference of $140,000 in value for the same payment, but with a 5% change in interest.

Another way to see the impact of interest rates is to look at buyers who pay the same price for a home but pay differing interest rates. Let’s say both buyers pay $250,000 for a home and one pays 3.5% for a 30-year mortgage and one pays the 8.5% rate.

Loan payments on the 3.5% loan would be about $1,123 per month. Over the course of the 30 years of the loan, payments would total $404,280. The buyer who takes out the same loan but pays an 8.5% interest rate would have payments of about $1,923 per month. After 30 years, total payments would amount to $692,280. At the higher rate, the buyer would pay a total of 288,000 more for the very same house.

Either way you look at it, financing at the lowest rate possible can make a significant impact on what you can afford and how much you will ultimately pay. Buying when rates are low is always better than renting.

5. Pride of Ownership

It is hard to put a price or value on the pride of homeownership. It is without question, however, one reason buying will always be preferred over renting. Buying a house makes it your home. You can paint it the way you want, decorate it in your style and plan future upgrades and improvements. You can plant a garden, add a spa and upgrade the security to where you feel comfortable. You can take pride in each and every improvement you make.

Homeownership adds you to a club of 65% of Americans who have joined in on the benefits.

Home Buying and Ownership Misperceptions

So with so many reasons to buy vs renting, why do some people continue to rent? It may have to do with persistent misperceptions.

Many renters may feel they have to save up to a 20% down payment prior to qualifying for a home loan. The fact is that there are lenders who will base their loans on other factors beyond the amount of the down payment. Loans are issued daily with much lower down payments. In some cases, there may be no down payment options available.

Some may feel they need a perfect credit rating to qualify for a loan. This too is not necessarily true as many lenders look past spotty credit when issuing a home loan. These lenders will frequently use the value of a property against its loan amount as the basis to make the loan.

There is a group of people who continue to rent because they may not feel like they could afford a mortgage payment. These people may be surprised at how much home they could get for the very same rent payment they are currently paying someone else. This is particularly true when mortgage rates are at or near record lows. When you buy, you know what your payments will be each month. Your landlord could increase payments after any renewal period.

For some, it is not the payment itself but other concerns like their credit or lack of down payment that prevents them from moving forward. Today, however, there are more creative and innovative loan programs to help potential buyers through these concerns.  Considering all the benefits of owning versus renting, it is well worth the effort to pursue a goal of homeownership.

While you can continue to rent, it won’t necessarily contribute to building your credit rating. Renting puts money into your landlord’s pocketbook and helps him build equity, not you. There are little to no tax benefits for renters and loan rates have never been more attractive. Finally, there is a sense of pride you will have in your home that can be difficult to explain.

If you’ve ever wondered why so many strive to achieve homeownership, it is because they understand the level of benefits that await once they achieve it. You owe it to yourself to discover the facts and learn more about the options available to you today. Don’t pre-judge your ability to acquire a home. You can take steps now to pre-qualify for a mortgage and begin your home search. It can be an exciting time that offers exceptional financial and personal benefits.