Renting vs. Buying – A Military Family Conundrum
“Why so large a cost, having so short a lease, does thou upon your fading mansion spend?”
Military families moving to Ft. Bragg or any military base are often faced with a conundrum: do we lease a home or purchase? Here are several factors you should consider:
- Length of your stay. How long are your orders for Ft. Bragg? Will you be here for three years, five years or until retirement? If you are transferred from Ft. Bragg and have to sell your house, you will need enough home equity to bear the costs of resale unless you want to bring funds to closing. A real estate agent will require at least six percent sales commission. Market forces may require you to pay some portion of the buyer’s closing costs. Equity arises from the reduction in your mortgage balance as you make your payments and the appreciation of your home’s value over time. Unless your home value increases sufficiently to cover these additional costs, you may have to rent your home until such time as you can afford to sell it.
- Statutory escape route. In North Carolina, military families are given an escape clause for all residential leases when a tenant receives orders. NGGS §42-45 allows for an early termination of a rental agreement by any member of the U.S. Armed Forces required to move pursuant to permanent change of station orders 50 miles or more from the rented dwelling place. There is no such escape route in mortgage financing. If you receive orders to move to another duty station, you cannot simply turn your house back in to your mortgage company. Your finances and credit rating would suffer immeasurably from such actions.
- Costs of Ownership. In North Carolina, it is a landlord’s obligation to provide fit and habitable premises; the tenant is not responsible for home repair. If that same tenant purchases a home, however, those repair costs become the homeowner’s responsibility. The same is true with property taxes and fire/hazard insurance. Both of these costs remain with the landlord in a rental situation, but are a homeowner’s obligation.
- Tax Advantage. The interest you pay on your home mortgage is tax deductible. This translates into an enormous advantage when it comes to your taxes. Congress has not seen fit to allow any portion of your monthly rental payment to be tax deductible. This is probably the biggest incentive for home ownership other than:
- Your Own Personal Investment. Making a monthly mortgage payment creates home equity. Making a monthly rent payment creates equity or income for your landlord. Not to mention the whole intangible sense of well-being that home ownership itself creates.
This is certainly not meant to be an exhaustive comparison of the relative benefits of renting versus buying. An on-line search can provide you with additional tools to assist with your decision; e.g. rent vs. own calculator [http://realestate.yahoo.com/calculators/rent_vs_own.html] or rent or buy worksheet [http://www.smartmoney.com/personal-finance/real-estate/to-rent-or-to-buy-9687/]