Massachusetts Home Buyer Guide

A recent Boston Business Journal headline proclaimed, "Renters, beware: Boston ranks #1 in the U.S. for apartment investors." How do housing consumers fight back?

It's simple. Pay your mortgage instead of your landlord's mortgage. Buying a home in greater Boston is expensive, but so is renting. Investors are betting you will keep renting and believing homeownership is out of reach. 

Weighing the Benefits: Buying vs. Renting in an Expensive Housing Market

In the face of rising rental costs and an expensive housing market, many Boston area renters find themselves at a crossroads: continue renting or leap into homeownership? Despite the high upfront costs associated with purchasing a home, there are compelling reasons why opting to buy might be the more sensible choice over the long term.

Building Equity Over Time

One of the most significant advantages of buying a home is the opportunity to build equity. As homeowners pay their mortgage, they increase their ownership stake in the property. This equity can serve as a financial resource for future needs or investments. Unlike rent payments, which offer no return to the renter, mortgage payments are an investment in one's financial future.

Potential for Appreciation

Real estate typically appreciates over time, meaning a home purchased today could increase in value. This appreciation can result in a substantial return on investment when the homeowner decides to sell. While the housing market has ups and downs, real estate has historically been a stable long-term investment.

Of course, making wise decisions throughout the home-buying process will increase the potential for your equity to grow. Prospective home buyers need an advocate to protect them when buying a home.

Tax Benefits

Homeownership comes with various tax benefits that can reduce the cost of buying and owning a home. Mortgage interest and property taxes are often deductible, which can lower the homeowner's taxable income and potentially result in significant tax savings.

Generally, you can deduct the mortgage interest you paid during the tax year on the first $750,000 of your loan debt for your primary home (not an investment property). If you are married and filing separately, the limit drops to $375,000, according to Nerdwallet.

With the recent rise in interest rates, some home buyers are paying points, a form of prepaid interest, to lower their mortgage interest rates. You can deduct points little by little over the life of a mortgage, or you can deduct them all at once if you meet specific requirements.

The nine requirements are as follows:

(1). The mortgage has to be for your primary home; 

(2). Paying points is an established practice in your area;

(3). The points aren't unusually high; 

(4). You use the cash method of accounting when you do your taxes; 

(5). The points are not for closing costs; 

(6). Your down payment is higher than the points; 

(7). The points are computed as a percentage of your loan;

(8). The points are on your settlement statement, and; 

(9). You did not pay the points in place of amounts shown separately on the settlement statement, such as appraisal, inspection, title, attorney fees, or property taxes.

Stable Monthly Payments

With a fixed-rate mortgage, homeowners can lock in their monthly payments for the duration of the loan, providing financial predictability. Renters may face annual increases in their rent, subject to the terms of their lease and fluctuations in the rental market. This stability can be especially valuable in markets where rents are rising rapidly, such as Boston.

Freedom and Customization

Owning a home offers freedom and personalization that renting cannot match. Homeowners can make alterations, renovations, and decorate their space without needing permission from a landlord. This freedom allows homeowners to create a living environment that reflects their style and needs. In addition, homeowners can make certain upgrades to their homes that might increase their value. 

Community Ties

Buying a home can mean laying down roots in a community. Homeownership can lead to stronger connections with neighbors and a more significant investment in the community's well-being and development. Renters may not experience the same sense of community, as the often temporary nature of renting can lead to more frequent moves.

The Bottom Line

While home buyers should not take the decision to buy a home in an expensive housing market lightly, the potential benefits—financial and otherwise—make it a worthwhile consideration for many. There's a reason it's called the "American Dream."

Building equity, the opportunity for property appreciation, tax benefits, stable monthly payments, personalization freedoms, and stronger community ties all contribute to the long-term value of investing in homeownership over continuing to rent. Prospective home buyers should carefully evaluate their financial situation, consider their long-term goals, and consult a real estate professional who will patiently guide them through the home-buying process.