Rent vs Own
"I'm sick of throwing my money away on rent." I hear this statement often, and it is usually followed up with, when is the best time to buy a house? I answer this question differently depending on who is asking it, but typically I say something like, "the best time to buy a house is when you are ready for it and have analyzed every aspect of owning a home. Homeownership is a big step to financial freedom. Still, before you jump into anything, it is essential to thoroughly analyze your situation and whether or not it is right for you. If you haven't owned a house or met with a mortgage banker, you might not know if it is even possible. Looking at Real Estate online can often be misleading. It can either lead you to believe your dream home is within reach or discourage you from ever thinking you can afford a home you would be proud of. Homes can be highly affordable or astoundingly expensive. They should be considered an investment, and for many homeowners, it's one of the smartest investments they'll make. Depending on how much you currently pay for rent, how expensive homes are in your area, your credit score, homebuyer assistance programs, interest rates, and how long you plan to live in the house (among other factors), buying a home is often less expensive than renting, especially in the long run. When you rent, you are paying for a roof over your head. When you buy, you become the owner of that roof and everything beneath it. Renting advantages:
- Renting offers more flexibility. You can pack up and move at a moment's (or a month's) notice. Depending on the terms of your lease, you're not usually tied to a residence for more than a year or two at most. On the other hand, when you own a home, you need to sell the property or find a suitable tenant before you can move—or else you'll end up paying a mortgage on an empty house or letting that home go into foreclosure. If you know you're likely to move within two to three years, you might be better off renting than buying. If you sell soon after purchasing, you don't have much time to build up equity in your house (its cash value as you pay off your mortgage's principal) and often don't break even on your closing costs and realtor fees.
- When you rent, maintenance is someone else's problem. You can call the landlord if something breaks, and they will pay to fix it. When you own a home, all maintenance and repairs are your responsibility.
- Typically you can move in faster when you rent. Finding and buying a house can take time. If you're in a hurry to move to a new neighborhood, you might want to rent for a year and look for a place to buy during that time. Renters can often move in soon after getting their rental application approved. On the other hand, buying a home can take several months, depending on your situation and the seller's situation of the home you choose to try and buy. It's essential to take your time when you're buying so that you invest in something that makes financial sense and is a place you can enjoy. In today's market, you can spend weeks and even months negotiating with the sellers before agreeing on a price and terms and conditions. Procuring financing and preparing for the property transfer can take 3-4 weeks and sometimes longer.
- Your move-in costs with renting are lower. Renting a house typically only costs the damage deposit and 1-2 months rent upfront. Buying a home can cost much more. You usually will need a down payment of anywhere from 3.5 to 20 percent of the home's purchase price and often more for the fees and costs associated with getting a mortgage and closing on the purchase.
- You can keep your money in the bank. Being a first-time homeowner frequently means scraping together all the money you can find to afford a down payment and closing costs. Once you buy a house, your money is tied up in your home. After you build up some equity (cash value in the place as you make principal payments), you can tap into it with a home equity line of credit. But if you want your money readily available (especially within the next few years), or if you're going to invest in something other than real estate, it may make more sense for you to rent.
No more landlords. It's hard for some people to pay good money each month and not get anything more in return than the right to live under someone else's roof. When you own your home, each mortgage payment builds up your equity in the house that increases with time. While some landlords are great, others are slow to make repairs—and quick to raise the rent.
Homeownership has significant tax breaks. You can deduct mortgage interest, property taxes, and closing costs from your federal income taxes.
Beat inflation. As the cost of living goes up, the cost of rent goes right up with it. However, if you use a fixed-rate mortgage to buy a home, your principal and interest payments stay the same for as long as you live in the house. The longer you stay there, the more you will benefit financially.
- Build equity. Renting is pay-as-you-go; as long as you pay your rent and abide by the terms of your lease, you can live in your home. But if you buy, as you make mortgage payments and as home values rise, you gain equity in your home. You can treat your home's equity like a savings account, cashing out when you sell the house and using the money for a down payment on your next home. Or you can borrow against it using a home equity line of credit.
- Have your place. For many people, the main reason to buy a home genuinely has its place. You're not paying off the landlord's mortgage—you're investing in a house with your name on the deed. Whether you buy a one-bedroom manufactured home or a many-roomed mansion, that's a great feeling.