Homeownership in America is considered to be the epitome of the American Dream. But some people feel like renting is a smarter and simpler choice. There are advantages and disadvantages to buying and renting in California. As an employee, should you consider buying or renting? Let’s get the facts, especially for you as a public employee.
Here Are Some Quick Facts About Buying Vs Renting in California
There Are Tax Benefits of Owning a Home
The first and immediate benefit of buying a home is the tax benefit. Most costs associated with buying a home are tax-deductible, which typically reduces the tax you owe. The Equated Monthly Instalments (EMIs) have two sections; the principal and the interest. You can claim the mortgage interest against the Income Tax. This deduction is a huge benefit, especially in the first years of your mortgage when the interests are high.¹
Calculating Your Tax Benefit
To determine if you will benefit from tax deductions, you first need to know how much tax you are paying. Get the difference between your personal tax and the tax deductions you’d get if you purchased a home and see which is higher. In most cases, homebuyer tax deductions are always significantly higher than personal tax. Buying Vs. Renting in California puts more money back in your pocket in a year than if you were renting.
Buying Is an Investment
In the long term, buying a home is a good investment. A home is an appreciating asset that grows in value due to factors such as growth in the economy, population, and demand.²
From the outset, mortgage repayments seem relatively higher than what one would typically pay in monthly rent. But note that the only portion of the mortgage repayment that can compare directly to rent is the mortgage’s interest and taxes. The principal is an investment.
The benefit of Renting vs. Owning
Cheaper in the Short Term
There are some parts of California where rent is lower, especially in Southern California, and it can be beneficial to rent from a cash flow perspective. However, it’s only really beneficial when done in the short term. The reasoning behind this is because the initial years of a mortgage have high interest.
Bad for the Long Term
Repaying mortgage will come to an end when your mortgage term ends. On the other hand, the rent will probably increase significantly over the same years as a mortgage term had you bought a house.
Renting is quite convenient as you won’t have to worry about maintenance and you can move to another house when you want.
Buying Vs Renting in California: Which is Better?
From the facts above, buying a house in California is the better option, especially in the long term. As a public employee, you are most likely to be in California for a long time. Besides, it’s a sound financial decision that will benefit you in the future. Besides, renting only takes money from your pocket without any returns, even though it’s convenient.
“About Mountain West Financial and the CalPATH Home Loan Program
Mountain West Financial is the exclusive lender offering CalPATH, the #1 home loan program for Teachers, Police Officers, Firefighters, and other public employees who serve our local California communities.
You may contact our CalPATH Hotline @ 800-310-7577, seven days a week from (8:30 am to 8:00 pm). A CalPATH advisor will be standing by to answer (any & all) questions you may have about the home buying or refinance process.
We look forward to working with you soon!
Sincerely, Joe Moore – Branch Manager”
Links to External Sources:
- Tax Benefits of Owning a Home https://www.forbes.com/advisor/mortgages/tax-benefits-of-owning-a-home/
- United States House Prices Growth https://www.ceicdata.com/en/indicator/united-states/house-prices-growth#:~:text=United%20States%20House%20Prices%20Growth,-1992%20%2D%202020%20%7C%20Quarterly&text=United%20States%20House%20Prices%20grew,average%20growth%20rate%20of%205.3%20%25.