EDITOR’S NOTE: Money Matters is a new series of stories running on SILive.com that will provide financial advice on common money issues related to everything from saving for retirement to buying a home. And while many of you have financial-related questions and no one to ask, that’s where we come in. Simply reach out to us, and we’ll get the expert advice you need.
STATEN ISLAND, N.Y. — To rent or to buy is an age-old debate, each coming with its own advantages and disadvantages.
Renting is less of a commitment, allowing people to shop around before settling down, but you will never get that money back. Buying is an investment with a guaranteed return if you can afford the upfront costs.
At a time when rent rates are at an all-time high and mortgage rates are just beginning to descend from a 20-year peak, the question becomes more complex.
We caught up with Toni-Ann Fischetti, a Staten Island-based mortgage loan originator with Cardinal Financial, to unpack the pros and cons of renting versus buying homes.
Question: I’m in my 30s; I have been paying $1,800 in rent per month. I make $90K, but I don’t have a lot of money saved. Is it wise to keep renting or should I take a 401K loan and try to buy a home now?
Fischetti: “Deciding whether to continue renting or buy a home can be a difficult decision, and it’s important to weigh the pros and cons of each option.
On one hand, continuing to rent may allow you to maintain financial flexibility and build up your savings, assuming the current $1,800 is affordable to you and does not increase over time.
On the other hand, buying a condo now can provide long-term benefits, such as building equity as home values increase, stabilizing your housing payment against rising rent, and giving you a sense of security, as you won’t have to deal with a landlord refusing to renew your lease.
Homeownership also comes with several tax benefits you won’t receive as a renter: Homeowners can deduct the interest they pay on their mortgage, property taxes and home office expenses from their federal income taxes. These deductions can reduce your amount of taxable income, which will lower your overall tax bill and increase your tax return when you file every April.
Additionally, homeownership can be a hedge against inflation because it allows you to lock in a fixed cost of housing; as inflation increases and the cost of goods and services go up, your mortgage payment stays the same, effectively reducing the cost of housing relative to other expenses.
There is a misconception that homebuyers need to come up with 20% of the sale price as a down payment, and it simply is not true. There are several low down payment mortgage options that could allow you to achieve homeownership sooner rather than later. In fact, first-time homebuyers put an average of 7% down, so you may be able to leverage just a portion of your 401(k) for your purchase as opposed to liquidating all of your investments.
Keep in mind, investing in your 401(k) is not without risk. When you contribute money to your 401(k), that money is invested in the options you choose, which can include stocks, bonds, mutual funds and other types of securities– and are subject to market volatility. Real Estate is also an investment tool, and you should approach using your 401(k) to buy a home as a way of rebalancing your portfolio. Essentially, you are moving your money from one type of investment to another. Also, when you borrow from your 401(k), you are paying yourself back over time! Most 401(k) loans have a maximum repayment period of five years, although some plans may allow longer repayment terms for loans used to purchase a primary residence.
The first step to help you determine if buying a property is right for you is to contact a local mortgage lender for a free, no-obligation mortgage consultation. Your lender will be able to determine how much the bank is willing to lend and how much you can afford to borrow based on federally regulated lending guidelines as it pertains to your income, available assets, credit score and credit usage.”
Toni-Ann Fischetti is a Staten Island based mortgage loan originator with Cardinal Financial, licensed in New York, New Jersey and Florida (NMLS #602489). She has an MBA from Wagner College and has been originating mortgage loans since 2010.
If you have a financial question you’d like answered, please send to galves@siadvance.com and we’ll find the right expert to answer your question.
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