For many people, owning a house is the ultimate fulfillment of the American Dream. Buying a home is a major life decision, but is it the right time for you to buy? Even if you’re ready to take that step, consider the current market, your financial situation, and your plans for the future when deciding whether to rent or buy your house.
Which is better for you right now, buying a home or renting a home? Let’s take a closer look to determine which one is right for you.
Is Renting or Buying Better?
What Are the Advantages of Buying a Home?
1. When you own a home, you could have a fixed monthly payment that doesn’t change (based on the type of mortgage you have). When you rent, your monthly payment could increase every year.
2. Every mortgage payment that you make brings you closer to owning your home. When you pay rent, that money doesn’t go toward home ownership. You’re not building equity or potentially increasing your personal wealth as you do when making payments on your mortgage.
3. You can stay as long as you like and move when it is convenient for you and your family when you own a home. When you rent, there’s a chance that your landlord may decide to sell their home, so you may have to move after a certain period of time.
4. When buying a home, you may be able to cash in on its appreciation over time. Your home may increase in value depending on how the market is and how well you maintain your house. For example, if you purchase your house for $300,000 today, it could sell for $360,000 later on when you decide to sell.
5. Owning a home could have tax advantages. Many of the costs of owning a home, like property taxes, may be tax deductible. If you’re paying off your mortgage you could get to count your mortgage interest as a deduction when you file your tax return at the end of the year. You would need to speak to your tax advisor to confirm these tax advantages.
6. You have the freedom to do home improvements on your house. As the owner of your home, you can do any home improvements you would like. If you want to do a simple roof repair or update your kitchen, you’re able to and you don’t have to get permission from a landlord. This also includes anything to enhance the aesthetic appeal of the home like painting the walls or hanging picture frames.
7. You might be able to access your home equity to pull cash out in case of an emergency.
8. You’re able to have pets without paying fees or experiencing breed restrictions.
What Are the Advantages of Renting a Home?
1. If you’re trying to become debt free and pay off any student loans or credit cards, renting a home may be a better option for you. While many view owning a home as an investment, taking out a mortgage is still a type of debt. However, it is a future-focused debt that with each monthly mortgage payment may bring you close to owning your home, as well as building equity on your purchase. This may be eventually leveraged as a cash-out refinance or home equity line of credit (HELOC).
2. When you rent you don’t need a large down payment like you do when you buy. Only a deposit is needed, which is usually much less than a down payment. On the other hand, each monthly rent payment is in essence lost because it is not going towards investing in a home as a possible asset.
3. If you travel frequently for work or have to relocate often, then consider renting. Keep in mind you should stay in your home for a few years to make buying a home worth the investment. So, if you’re considering relocating sooner than that, renting may be better for you. However, with remote work now a possibility for many jobs, you may have more control over your schedule. This may allow you greater flexibility to live where you want and be able to put down roots as a homeowner who telecommutes.
4. There’s more flexibility for where to live. There is a possibility of being able to live in an area in which you could not afford to live if you are buying.
5. When you rent, you may be able to move into the rental soon after finding it because moving out is usually easier for a tenant than a homeowner.
6. Renting usually requires less up-front costs compared to buying a home.
7. When you own a home its value is subject to the fluctuations of the market, and when you rent, you don’t have to worry about the market because that risk falls on the property owner. Generally speaking, however, home ownership is typically a better long-term investment than renting, despite the day-to-day changes of the market.
8. When you rent you don’t have to pay for maintenance. If the water heater stops working or a pipe bursts, you don’t have to fix it yourself. Instead, your landlord is obligated to make the repairs.
Is Renting Cheaper than Buying?
Many people believe renting is cheaper than owning a home, but that’s not always the case. By renting, there’s a chance that your landlord may increase your rent each year. When you buy, your monthly principal and interest payments are essentially locked in with a fixed rate loan.
You can use a mortgage calculator to estimate your monthly payments. Also, when your home’s value goes up and your mortgage principal goes down, you’re ultimately investing money in your home that you could get back when and if you decide to sell.
Also, keep in mind, if you paid the same amount for the next 10 years, that money you’re spending on rent could be put towards a mortgage payment instead.
In addition, you may think you need to rent because you’re unsure if you qualify for a mortgage or if you don’t have the required down payment. However, there are many unique loan programs with flexible qualification requirements and some that even provide down payment assistance.
Questions to Ask Yourself
1. Do you qualify for a home loan? Before you start the home buying process, you should contact a bank to find out which home loans you qualify for.
2. Are you looking for a long-term investment? You should stay in your home for at least a few years in order to make buying a home worth the investment.
Consult with a Loan Officer to Decide Whether to Rent or Buy
Deciding whether to buy or rent isn’t always an easy choice. You should carefully consider your financial situation and work with a bank to see if there’s a loan that’s right for you. That information can go a long way in your decision to rent or buy.
So is it better to rent or buy a house? Only you can answer that; deciding between renting and buying a home is a personal choice, as you have seen in our article, that can depend on many considerations.