One of the trickiest and most important decisions that many have to make, at least once in their life span, is choosing whether they should buy a house or rent a property.
At the end of the day, a portion of money will be going out from your bank account monthly — whether it is rent payments or mortgage payments — so it is better to see what is more worth it in the long-run.
It is obvious that buying a home is one of the strongest ways to invest in real estate, especially in the current booming real estate market. Homes appreciate over time, whereas stocks and other forms of investment do not necessarily reflect economic performance.
On the flip side, renters pride themselves on their mobility — they can move in and out of expensive cities, states, and even countries with ease. However, when you consider that most people spend roughly ⅓ if not more of their income on rent, it's easy to see how this adds up.
Both renting and buying a home have their pros and cons. One thing is for sure - making this important decision without doing any research will result in regret.
In this post, we have gathered all the details regarding renting vs. buying that will help you with your decision.
Read this article to help you understand which option is the smart (and better) choice for you.
Questions To Ask Before Buying Or Renting A House
Keep in mind that whether you choose to buy a house or rent one, monthly payments will still be needed. To make the decision easier, though, ask yourself the following questions:
Can I Afford To Buy A House?
You might be thinking, ‘Yes, of course, I can afford to buy a house with a down payment,’ but my answer to this question may change your mind, and here’s how:
When you buy a house, you are paying for more than just the mortgage interest payments. You will need to budget for other costs, including maintenance, lawn mowing, property taxes, broker's fee, and much more.
On the other hand, monthly renters usually do not have to worry about these expenses. You will have to pay a clear monthly cost, and you are free to move in.
When owning a house, consider all the expenditures you will be required to take care of, along with the tax savings, so that mortgage payments don’t affect your financial health negatively.
Is It A Good Time For Me To Own A House?
You must ask yourself this crucial question when you have to decide between renting versus buying a house.
The more expensive your home is, the higher your mortgage per month will be. Write down your current monthly expenses, add in a down payment and determine if you can afford it. Depending on your target home price, it is important to figure out whether an investment in a home is the best option right now.
For some, it might be a better idea to wait until they have more money saved up.
What Is My Financial Situation?
Along with the money you have saved up, ask yourself what standing your credit score is in. Will you get a good loan? How much downpayment can you afford? Will you be okay with a fixed rate mortgage? How much of a mortgage interest deduction can you receive?
Speak to a financial advisor regarding the questions above. It is possible that you will have to pay fewer upfront costs if you can get a loan at a good mortgage interest rate. In addition, you should have a clear financial sense, depth to income ratio, and other assets before applying for a fixed rate loan.
Furthermore, analyze your ongoing expenses and paint a reasonable picture of your financial position before pursuing a house loan. Home prices, mortgage insurance, and mortgage payments will be of no value if you are unable to afford them.
Is It Worth It To Buy A House?
Once you have a clear indication about your financial position, your next step is to decide whether you want to rent or buy. To verify which one would be the best for yourself, take into account both the advantages and disadvantages of home buying.
Buying A House: Pros And cons
Let’s consider the pros and cons involved when it comes to buying a house.
Advantages Of Buying A House
Read on to learn more about the advantages of buying a house.
One of the biggest advantages of buying a house is its permanent ownership of the house and long term capital gains.
House owners are free to make their own decisions regarding their real estate. They don’t have to deal with a real estate agent or a landlord on a monthly basis.
Furthermore, if they want to change their location, they simply have to sell their existing house according to home prices in the local area and buy a new one in the desired area. This also leads to homeowners making significant profits.
Another crucial advantage of owning a house is becoming financially stable. It allows you to be secure and reduce the risk of losing money on monthly payments where the house is owned by someone else.
Buying a home is a great decision for those who do not want to worry about unexpected rent increases.
Moreover, if you are budgeting, you can always flip a house for a good profit depending on the rates in your local housing market and get a bigger and better home of your choice in the future.
No Rules And Regulations
Being an owner of your property provides you with the maximum authority over it. You can knock down the walls of your kitchen to make it bigger and increase home value, and there will be no one to question you.
Additionally, you will not be bound to follow any rules and regulations that being a renter demands. Do you want a pet? Get one. Do you want to paint your walls yellow? Go for it.
Last but not least, another vital benefit of buying a house is the opportunity to lease it. If you are a real estate owner, you can receive monthly rent from your house and make a good profit through it.
If you have a vacant space, you can rent it out, maintain the house's ownership and generate income by doing almost nothing.
Although investing involves risk, when you invest in property, the risk is minimal.
Disadvantages Of Buying A House
Aside from its advantages, buying a house also comes with a few cons. To make an educated decision, it is mandatory to discuss both sides in detail.
High Upgrading Cost
One of the biggest disadvantages of buying a house is home maintenance costs. When you buy a house, it is your responsibility to look for any renovations or repairs that require your attention, even if you have homeowner's insurance.
Neglecting these updates may result in a more expensive issue. Moreover, as the house owner, you will have to bear the expenses of renovating every major and minor upgrade all by yourself.
Additionally, whoever buys a property, whether it is newly constructed or old, are bound to face issues of different kinds within the initial months of purchasing the house.
Lack Of Flexibility
Unlike renting a house, buying one will diminish your flexibility limits for exploring new destinations or finding job opportunities in another state.
Aside from that, selling a house you own requires you to go through an extremely lengthy procedure, unlike a tenant who can leave their house on short notice to the landlord.
It’s the harsh truth that buying a house is always more expensive than renting one when you add in additional costs and maintenance fees. Not only that, it demands a good financial balance since costs such as the down payment, closing costs and property tax really add up.You will have to save up at least a 20% down payment of the total cost of your home's purchase price. Furthermore, renting versus buying a home involves a lot more paperwork such as sales deeds, name transfer, and homeowners insurance.
If you're planning to buy property, you should be aware of your state's tax deductions or local taxes.
Property taxes are taxes that are paid by the owner of the real estate. Tax laws vary from state to state, but according to the US Census Bureau, the average tax paid by property owners per annum is $2,471.
Before purchasing a property, reach out to an expert for tax advice to ensure you receive the maximum tax benefits at the end of the year.
Hectic Monthly Mortgage Payments
Saving up money for mortgage payments is not easy. While you can be glad that your home value is increasing each month, it will still hurt your pockets when your mortgage payment comes around.
If you buy a house that is way out of your budget, and you aren't earning enough to pay your debts, you will land yourself in big trouble.
While there are private agencies to help provide loans based on your credit score, this is not a long-term solution. Ensure you do not buy a property that you cannot afford to avoid this problem.
Renting A House: Pros And Cons
Simply put, home buying isn't an option for many people because of increasing home prices. If you want an answer on whether to rent or buy, it would be unfair to keep the pros and cons of renting out of this home guide, so with that said, let’s review both of these.
Pros Of Renting A House
Let's have a look at the pros of renting a house.
Free Home Maintenance
One of the most crucial benefits of renting a home is that you don’t have to pay for any maintenance, property taxes, or repair costs throughout the rental period. The homeowner has to deal with these issues themselves.
However, if there is an amount written in the agreement to pay in case of particular damage, the tenant has to pay that off according to the home price.
Renting provides you with a lot of opportunities. For instance, if you are a tenant, it’s a great opportunity for you to look for jobs in different cities without worrying about your house since renters can give a one month notice in most cases and leave.
Additionally, if you want to live in a well-recognized neighborhood but are unable to afford a house there, you can still rent a house to enjoy their top-notch facilities with a limited budget.
Another vital advantage of renting a house is the increased flexibility. As a tenant, you have the authority to leave the house whenever you want on short-term notice to the landlord. When you own a house, it is not so easy to just get up and leave.
In addition to that, you don’t need to find someone to replace your lease with as this is the job for the house owner.
Cons Of Renting A House
Similar to buying a house, renting one also has a few drawbacks that you must be aware of.
Your Home Is Temporary
As a renter, you can be asked to leave the property when your contract ends. This means your home is never really your home. It is not an easy thing to pack everything up and move to another location.
In addition to that, added moving expenses make the process even more difficult. For someone who wants a permanent home, renting may not be the best option. However, if you are open to moving when your contract ends, then renting won’t be an issue.
Your Home Is Not Your Asset
Another disadvantage of rentals is that you cannot claim them as your own no matter how long you have been living in them.
Although paying rent is cheaper, in the long run, you are not getting anything out of the property. Even if it is more expensive, buying a house provides you with a good payback for your investment.
Renting a house comes with a lot more restrictions and regulations that you will have to follow. This can include not being allowed to have pets, or not being allowed to hang up paintings in the house as it damages the walls.
However, there are some home owners that don’t force a lot of restrictions. It depends on how lucky you get. Regardless, at the end of the day, they do have the authority to set rules for you to follow if they wanted to.
What Do The Experts Recommend?
To sum up the article, buying or renting a home is an intensely personal decision. Some financial advisors agree that owning a home makes sense as long as it's not within close proximity to any major cities (where rent costs exceed average wages).
When people purchase homes in these areas, they're actually running at a loss even if they purchase with cash because of all their added costs versus what they could get in rent.
However, depending on your financial situation and where you see yourself in a few years, renting might be a more viable option.
As always, run the numbers yourself and determine what the best option for you is.