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3: Analyze Your Circumstances

Renters: Beware of Missed Opportunity Costs

Flying money bagBefore you sign your next lease, consider some of the potential opportunity costs of renting rather than owning:

  • By renting, you miss the opportunity to build equity in a home. When you buy a home, every mortgage payment goes toward paying off some of the money that was borrowed (principal). Home equity is the difference between the market value of a home and its outstanding debt balance.  It also is considered one of the most effective ways to build up savings.
  • When you rent, your payments go to helping the landlord pay his or her mortgage, not to building your equity.
  • Renters miss out on income tax write-offs. Homeowners can deduct mortgage interest and property taxes on their annual tax returns.

As rents increase, you might find that monthly mortgage payments are less than monthly rent, depending on your circumstances. Homeowner tax advantages might even make it possible for you to buy more home than you rent for the same monthly payment. However, keep in mind that buying a home typically requires a large down payment and good credit history.

Help for Homeowners

There are programs available to help potential homeowners. Jump to the Resources section of this course for some places to start.

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