Friday, January 10, 2014, AM | 1 Comment
These days, many individuals are faced with the housing decision to either purchase their home or rent. When figuring what is the best route for your needs, knowing the positives and negatives of both will help with the decision making process.
Many people assume renting is a waste of money, but given various situations, it may be better than buying. Both are important financial decisions and knowing what you are getting into beforehand will help.
Negatives of Renting:
For those who choose to rent rather than buy, one of the biggest issues you will face is that you will not be paying anything towards the equity of the home. Whether an apartment, condominium, or house, whatever you pay each month will go to the landlord instead of towards a loan. Most who rent know this and understand that they will not be seeing that money again, aside from the security deposit.
Unless renting a home is an option, most rentals are apartments or condos. This may deter some people due to the fact that you don’t have as much privacy as you would if you were in your own home because of the close proximity to your neighbors. For those individuals who need their own space, a home is the better option.
Positives of Renting:
Renting is a great option for those who are on their own for the first time or know that they will not be living in the same place for an extended period of time. Most people assume that because you rent that you cannot afford a down payment on a home, but sometimes this isn’t the case.
Some people would rather rent due to the fact that there is nothing to maintain, and the landlord is responsible for issues if something were to arise. Because of this, the renter has less to worry about. The savings in having the landlord pay for repairs will add up to a good amount depending on what needs to be fixed and how often problems arise.
Another positive to renting is that there is less to pay for. Because you do not own the home, you do not have to pay the property taxes associated with it. Property tax is a large amount of money that has to be paid every year by the homeowner.
Another added benefit to renting is the possibility of saving on utilities that may be included in the monthly rental cost. Depending on where you are renting, this may be a big help.
What to Expect when Purchasing a Home:
When it comes to purchasing a home there are more pros and cons compared to renting, especially when it comes to costs. As a homeowner you need to figure how much of a down payment you can come up with and keep an eye on the current market as well as mortgage rates.
The average home buyer should aim for a 20 percent down payment to avoid private mortgage insurance (PMI), which increases your monthly mortgage payment until that 20 percent in equity is reached. Coming up with such a large down payment may take a long time for most depending on the cost of the home. In many cases, people who rent apartments do so in order to save up for a larger down payment.
The cost of home ownership outweighs that of a rented property over time, as there are more costs associated with being a home owner. Many home buying costs include purchasing costs, yearly costs, taxes, insurance, possible selling costs, etc.
Although it will cost more, a purchased home is an investment and the costs can be recouped if it were to be sold. With renting, the only costs besides the monthly bills include security deposit (which you can get back), and renters insurance (which is inexpensive).
Positives to Home Buying:
There are many more positives to buying compared to renting. The biggest and most important is the fact that you as the owner are paying for something that is yours. Paying the mortgage every month goes towards the equity of the home, and each month you are one payment closer to owning the home.
With a purchased home, you have much more freedom to do what you want as far as customization. This is one aspect of homeownership people enjoy because they can make the house “theirs” unlike a rental where you cannot make changes. However, much more responsibility comes with owing a home.
If something were to go wrong, you are in charge of taking care of it. More often than not, when something goes wrong or needs to be repaired, it can cost thousands of dollars out of pocket.
When deciding to rent or buy, there are numerous aspects to evaluate. With a home, you have more of an established sense of security with the ability to build equity. A downside to this however is you do not have the ability to move right away if it is needed as well as the added costs that come with being a home owner.
With being a renter, you have much more flexibility to move as you are not tied down to the home or need to try and sell it. Both renting and buying can be great for people depending on their current situations and future goals. One is not better than the other like most assume, and both can be excellent financial decisions.
Mark Scheets is a writer for Total Mortgage Services. For the past 15 years, Total Mortgage has combined the personal service and integrity of a local lender with low rates, convenience, speed, and know-how of a national lender.