Renting vs. Buying a Home: What's the Right Option for Me?
Owning a home has been part of the American dream for a long time, but that aspect of the dream has been dwindling. There's the ongoing debate of whether or not it's better to rent than to buy a home, but it doesn't come down to a simple yes or no.
Renting can be very beneficial, but so can owning a home. There's a large gray area, and that gray area is filled with your personal interests. Only you know what will be best for you.
In this post, we'll present the advantages and disadvantages of both renting and buying a home so you can decide which option is the best fit for your lifestyle.
Advantages of Owning a Home
- Build Equity – When you pay your monthly mortgage statement, your payment goes towards your principal and interest. Equity represents the property you actually own. The more you pay on your principal, the more equity you build up, which decreases your debt amount.
Another factor that helps build equity is your property value increasing. For example, if your neighborhood booms and housing prices increase, your home will become more valuable. Equity is a valuable asset and a great benefit to owning a home.
- Tax Benefits – One of the main benefits a homeowner can take advantage of is federal tax deductions. Basically, when tax season rolls around, you can deduct your property taxes and the interest you've paid on your mortgage.
- Creative Freedom – Even though you have a mortgage, it's still your property, and you can do what you want with it. Paint the walls, redo your kitchen, upgrade your bathrooms, etc. There's no landlord standing in your way.
- The Possibility to Rent Out – If you find yourself with extra space, you can consider renting it out, which can help with your mortgage payment. And if you don't like the idea of having a long-term resident on your property, you could consider short-term renters and designate some space for an Airbnb.
Disadvantages of Owning a Home
- High Upfront Costs – Down payments are a lot of money, and if you're a first-time homebuyer, chances are you'll also be paying for private mortgage insurance (PMI).
The only way to get out of paying PMI is if you make a down payment of 20% or greater, and that's not usually conceivable for a first-time homebuyer. (The average down payment of a first-time homebuyer is 4%, which equals $10,000 for a $250,000 mortgage.)
Then there are the closing costs. The national average for closing costs is about $3,700. As you can see, that's a lot of money up front.
- You're Settled – This could be a disadvantage if you're the type who likes to relocate. Yes, you could always sell your home, but you're more than likely going to lose money on it if you do.
- Maintenance Is on You – Leaky faucet? That's on you. Dishwasher breaks? That's on you too. You are maintenance, so you can only call on yourself or pay to hire a professional. (If you want to learn a new skill, then maybe this is a pro for you!)
Advantages of Renting
- You Luck Out on Any Maintenance Needed – Speaking of maintenance problems, if you rent, there's no need to worry. Call maintenance. They'll deal with it.
- The Freedom of Relocation – Renting is good for people who don't plan on staying in one location for a long period of time. This often applies to younger people whose careers might take them elsewhere.
- No Need to Worry about the Market – Fluctuating interest rates? Decreasing values in homes? You don't need to worry.
- Utilities May Be Included – When you rent, your utilities may be completely or partially covered. But there are instances where none are covered, so that can be a downside.
Disadvantages to Renting
- No Equity – You're not paying for ownership, so you won't be building equity.
- No Tax Benefits – There's also nothing to deduct on your taxes.
- No Control of Housing Costs – Next time your lease comes up for renewal, your landlord could possibly raise the rent. So you can pay the higher rent amount or find somewhere else to live.
- No Housing Security – There are laws in place that help protect renters. But if there's reasonable cause from your landlord, you can be evicted. Also, a landlord can decide not to renew your lease, as long as you've been given notice (30–60 days).
Questions to Ask Yourself
How Long Do You Plan on Staying in Your House?
For the most part, the longer you stay in your home, the better it is for you financially because your costs are spread out over time. If you plan on relocating in the near future, renting might be the better option.
What Are the Housing Costs in Your Area?
Compare what it costs to rent a home to how much it costs to buy a home in your area—you might be surprised what the cheaper option is.
Can You Handle the Stress?
Analyze your situation to determine whether or not you can handle the additional stress of homeownership. There is a lot that goes into buying a home, so you'll want to make sure you won't get overwhelmed.
Is It Worth Investing Your Money Elsewhere?
Let's think back to that down payment. It could be invested somewhere else, like the stock market or a high interest-rate savings account.
Are You Ready for Homeownership?
Carefully examine your financial and life goals before you take the plunge into homeownership. There are a lot of tools out there to help you in making this decision, like this Rent or Buy Calculator from the New York Times. This calculator is very intuitive and factors in a lot of information.
If you decide that buying a home is in your best interest, we here at Elevate Mortgage Group can help. We strive to give you the best experience when it comes to getting that dream home of yours. You can contact us online or give us a call at 888-935-3828.