The Benefits to Buying vs. Renting
Is it time to move out of your rental, your apartment or lease? Are you at a place in your life where you are ready to settle down and form roots? If you are considering purchasing a home, take a moment to consider the pros and cons of renting and buying.
First things first: Should I consider buying a home?
While we all have varying lifestyles, desires and dreams for their next living situation, here are some of the questions that should be asked before taking the next step.
Does renting or buying work currently for us?
Some people love living on the go and not having to worry about the responsibilities of a more permanent location. While this is more of a personality element with renting, other individuals or families are expecting changes to come up within the next couple years of their life like a job change. For this, renting is not a bad option because it would be easier to pick up and move to the next location rather than settling down with a mortgage and having to go through selling a property in order to move to another place.
However, if you find a neighborhood that you really enjoy and can see yourself settling down, buying a home is a good idea! Owning a home offers a more stable living situation without the scare of rising rent costs and leasing fees. Homeowners also get great tax benefits for owning their homes and are able to do a lot more to their homes cosmetically than what a renter can do due to leasing agreements.
How much can you afford?
Homeownership can have its benefits however it can also have its own set of costs in the process. You will need to have an amount in the bank that accounts for your down payment and closing costs and that is all dependent on the type of home loan you get as well as other fees associated with the process of a home loan (that paperwork processing can add to the cost as well). 3% is a typical down payment amount on a home but if you put more down, you save on mortgage insurance and interest.
On top of those initial costs, the upkeep of a home will also have to be factored into your decision such as repairs, upgrades and utilities along with your mortgage price. Make sure you get a decent picture of what the cost might be from your mortgage professional and they will determine what would be the best loan type and route you can take if you are still considering homeownership.
Do not squander all of your savings and start living paycheck to paycheck just to move into a home (your lender wouldn't want you to make that decision either). If you find your budget makes it so that buying would be too costly, renting would be more in line with your financial goals in the mean time. This would give you time to save, restructure your budget and build your credit so that you can be in a better position to get a better loan type since that factors into how much you can save in loan-related costs.
Does it fit with my lifestyle?
Building wealth to an extent is what we all strive to achieve with various goals and aspirations. If purchasing a home falls into those goals, then purchasing should be something to thing about for long-term reasons. Buying a home can also be passed down to future generations and can give opportunities to expand further into more investment opportunities. If you are simply not ready to take on the responsibility that comes with owning a home such as repairs and upkeep when things break down, then renting might be more your speed. Renting might also make more sense if you have a busy lifestyle and have to move around a lot due to your career.
Advantages to Renting
Renting a home makes it a certainty that when repairs need to be made or if anything provided needs to be replaced, the responsibility lies with your landlord. This can save you money in repair costs that could bring setbacks. You also have the flexibility to move wherever you like without being tied down by a mortgage or more permanent housing situation. Finally, renting can free up your income to use for savings goals or other investment opportunities.
Disadvantages to Renting
Buying a home has its advantages but it also comes with its disadvantages too such as the feeling of uncertainty. If you are renting a home, the landlord can decide to let the lease expire and sell the property which effectively means that you would have to look for a new place to live. There is the feeling of a temporary living situation too. Renting does not allow for you to plant permanent roots and find a footing in a neighborhood that you might like. The lease period on most places might have a limit to the amount of time you renew as well.
One big disadvantage of renting is the inability to gain any equity in the place you are living in. Homeowners gain equity as they pay down their mortgages on the value of their property. Renters do not get this benefit and are effectively paying the landlords mortgage with their rent payments. On top of this, you also can't really make any modifications to the home that you want. You might have a few guidelines that you can work around but that fourth wall you want to take down to add more space...that won't be allowed as a renter.
Advantages to Buying
For all the disadvantages that come with renting, those turn out to be the advantages for purchasing a home. Building equity and value for your family over time is huge and makes staying in a place you own that much more valuable. There are significant tax benefits to owning that you acquire as an owner and not as a renter and you can make your home as customizable as you want without the sting of a landlord over your shoulder. Finally, you get the stability of paying the price you agree to when you purchase your home and not feel the increases in rent that you would find from a lease.
Disadvantages to Buying
Home value usually goes up as you pay down a mortgage but in some cases like a fluctuating economy, your home value can go down and you might be on the hook for any additions to your home as well as other fees like an HOA in those retraction periods. You can stretch your investment out over time but that is the risk you take on as a homeowner that a renter will not see. You are also in charge of the extra expenses with repairs and additions to your home that you want to see.
In the end, the decision to purchase a home or keep renting is entirely up to you and your financial situation as well as foreseeable planning. Never forget to ask one of our mortgage professionals about your situation because we can determine if you are ready to buy but also walk you through the steps to get you in a position to buy in the future.