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- Renting VS Buying a House: Weighing the Advantages of Home Ownership
Renting VS Buying a House: Weighing the Advantages of Home Ownership
Recently, many people have realized that although home ownership may be a popular long-term goal as well as a symbol of stability and success, this option may not be the most sustainable for their current lifestyle. We put together an easy guide to help you weigh out the pros and cons while staying true to your goals and budget!
What’s the difference between renting and buying?
Let’s start off by going over the key differences between renting and buying a home. When buying a home, homeowners are able to build equity over time. As your home accumulates equity over time, the value of your home increases and you’ll be able to sell your home for a higher value when the time is right. Additionally, with a fixed-rate mortgage, rising rent is never a concern. Another factor for home buyers to consider is tax implications and will you be able to deduct the mortgage interest at tax time. Check the Changes to the tax laws in 2018 to see if you’re eligible to itemize your taxes to write off your mortgage interest payments. When it comes to maintenance costs, you’re 100% responsible to cover those as a homeowner.
When renting a home, your main responsibility is the monthly rent owed, since maintenance costs are often covered by the landlord. Depending on the rent agreement, you either pay for utilities on your own or they’re included in your rent owed each month. Renting has a lot of advantages like allowing you more flexibility and less over-head or unexpected costs, however, there are also a few disadvantages when it comes to long-term goals like not being able to build equity.
When deciding to rent or purchase, consider your current phase of life and where you see yourself in 5 years, etc. This will allow you to make the best financial decision as you weigh your options.
Pros and cons broken down:
|Less upfront costs/paperwork.||Lack of equity built.||Accumulate Equity and you own it once it’s paid off!||Upfront money and paperwork required in advance.|
|Flexibility.||More likely to move.||Stability (ex: Schools)||Additional expenses along with mortgage.|
|No property tax bills.||No tax benefits.||Possible tax benefits||Could lose money if home value declines.|
|Build credit (If landlord reports rent payments to the credit bureaus)||Landlord limits freedom and can raise the price of, or sell the property.||Freedom of remodeling upgrades and improvements.||Responsible for costs associated with home improvements.|
Determine what can you afford. Something else to take into account when making this decision is how much you can afford.
If you’re renting, here’s some things to consider from a cost perspective:
- Security deposit—Your landlord will most likely ask you for a security deposit as protection against possible damage by the renter.
- Utilities—An important question to bring up to your landlord is whether or not your monthly rent includes utilities, such as water, electric, gas, cable or internet.
- Monthly rent in your area—Consider the average cost of rent in the area to determine your best financial decision. Often times metropolitan areas will surge the cost of rent making home ownership a more attainable goal.
If you’re considering the purchase of a home, here’s some costs you can expect along the way:
- Money down—For homebuyers, if you put less than 20% down your lender will typically require you to purchase private mortgage insurance, or PMI, which drives up your monthly payments.
- Closing costs—These are the fees you pay when obtaining your loan. Average closing costs for the buyer run between about 2% and 5% of the loan amount.
- Equity rate—Consider home equity rates and be sure to shop around for the lowest rate.
As you can see, there’s a lot to consider when making a decision like this, however, we hope that our breakdown of the options has been helpful! Better yet, there’s some great tools out there to help with the process. To more accurately calculate the opportunity costs of each option as well as weigh out your current life situation determinants, use the New York Times Rent vs. Buy calculator. We hope your experience, whether it’s renting or purchasing, is truly amazing