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Is The Time Right For Buying A House, Or Is Renting The Best Option?
Renting vs. Buying a Home
The debate rages on between homeowners and renters. Who is actually getting the better deal? The truth is there are benefits for people in each stage of their lives with renting or buying. For some, building a family starts with buying a homestead. For others, saving money on the upfront costs is more important.
As people build careers and begin earning more money, the question becomes whether buying is affordable within the right area or whether renting would be a better option. Furthermore, if you want to invest in a property, then home ownership offers a lot of benefits.
This guide breaks down renting and homeownership by different advantages, cost, tax benefits, customization, and disadvantages.
Costs of Buying a Home
There are a few things that you should know before buying a home. For one, there are a number of upfront and closing costs.
You must pay a percentage of the purchase price upfront as a down payment. Most sellers are looking for a 20% down payment based on the purchase price. Less than 20% will result in additional loans and fees.
Buyers take care of the home appraisal costs. These range from $300 to $500. This is necessary to get the loan approved by the mortgage company.
While you do not have to get a home inspection, it is recommended in order to spot issues with the home like mold, water damage, foundation problems, pipe cracks, and other major issues that can lead to remodeling costs.
Property taxes are a new problem you’ll have to worry about when you buy a home. Texas has the 5th highest property tax rate in the nation. Try to include property taxes in your monthly mortgage payment to avoid coming up with a large lump sum every year.
Lenders also require that you provide proof of homeowner’s insurance prior to the closing date. You typically will have to pay the first year’s premium upfront. This is based on the style, location, value, and contents of the home.
Just like with a rental payment, you have a monthly mortgage payment that you must pay on time or else you will have to deal with higher interest rates and loan collection calls.
Lawn, home, upkeep, repairs, and other remodeling costs are all the responsibility of the homeowner once you purchase a home. If you are part of an HOA, you will have to pay hundreds of dollars in fees per month, depending on the area.
Costs of Renting a Home
In general, there are lower costs and easier entry fees for renting a home or apartment. Here are some costs you can expect:
Most rentals will require a security deposit to cover any damages that may occur during the rental or a broken lease. If you have good credit, you may be able to avoid this deposit fee, but usually, you will be required to pay up to 1.5 times the rental price to secure the rental.
First, Last Month’s Rent
In some cases, landlords will require both first and last month before the move-in date. This can get pretty costly if you are renting a large home with extra features like a pool or family game room in a nice neighborhood.
Do you have any cats or dogs? Your landlord may require a pet deposit to cover any repairs necessary. Some landlords may require a monthly fee in addition to the deposit.
To run a credit and background check, the landlord may ask you to pay a non-refundable fee of $40 to $100 per applicant.
Advantages and Disadvantages Of Buying and Renting
Equity Over Time: With home buying, you invest in your home and build equity. Every dollar that you put toward your loan payment, you add to the equity percentage, and once you reach a 20% or 80% loan to value ratio, you can refinance if you want to.
Tax Benefits: Homeowners also get some credits back for purchasing a home. Many states have exemptions for owner-occupied homes. There are also federal tax reductions for first-time home buyers.
Potential Income: Homeowners can often move out of their first home and put it up for rent, turning the property into an investment property and income-generating investment.
No Maintenance Costs for Renters: Your landlord has to take care of the lawn and repairs with a rental. You simply have to make a phone call to get something fixed. This is covered in landlord-tenant laws.
Renters Have Lower Credit Requirements: Most landlords do not have a specific minimum for credit scores. If you can prove income and rental history, then you’re in. Unless a score is specified, it’s likely that you can prove income with pay stubs to lock in a rental.
No Creative Control or Modification with Rentals: You’re not really allowed to re-paint, remodel, add new appliances, or replace the flooring with a rental. Your landlord will get extremely upset if you paint the walls in their home lime green, especially if they have already had a specific palette. Most landlords will state what you can and cannot modify within the apartment.
The right time to purchase a home depends on your financial situation. If you have the upfront costs and financial means to jump into homeownership, then you can avoid issues with rental payments being tossed away without contributing to an investment. Depending on where you choose to live, you may also want to look at mortgage rates and property taxes to see how much homeownership will cost compared to the average rental home.
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