Why Buy A House Instead Of Rent
Renting can be a very predictable expense. You know what your costs are upfront and can plan accordingly. On the other hand, if you enjoy a lavish lifestyle, you may find renting to be more expensive than owning a home, even if there are repairs and regular maintenance you have to make with purchasing real estate.
why buy a house instead of rent
Home buying has earned a bad rap in recent years: The subprime mortgage crisis and ensuing economic meltdown left many homeowners underwater, unable to pay their mortgage, and even facing foreclosure. Homeownership rates fell throughout the recession, and are currently around 66 percent, compared with almost 70 percent in 2004, according to the Census Bureau.
But the great American dream of owning a home appears poised for a comeback. Real estate company Trulia reports that in many parts of the country, rents are rising while housing prices are falling, making buying a home more affordable. Trulia found that in 98 out of 100 major metropolitan areas, including Detroit, Atlanta, and Cleveland, buying has become more affordable than renting.
Energy-efficient improvements, from adding insulation to upgrading your air conditioning unit, can reduce your monthly utility bill, says Jane Hodges, author of the new book Rent Vs. Own. While renters can make plenty of green improvements on their own, from unplugging appliances to turning off lights, homeowners can make bigger changes, such as adding solar panels or installing an energy-efficient roof. (Of course, a renter living in a one-bedroom apartment likely uses far less energy than a homeowner in a three-bedroom house, so size can trump energy improvements.)
"Often when you're renting you need custom furniture that fits the space," says Hodges, such as room dividers for a loft or miniature furniture to fit into a basement apartment. "When people move a lot, they can end up buying a lot of furniture," she says. If you buy a home and settle in for the long haul, you can likely purchase a few pieces that will stick around.
The so-called "forced savings" argument is a widely-held one: Since homeowners have to pay their mortgage every month, they are routinely putting money away (and into their house, which they own), instead of squandering it on new shoes or fancy meals. Then, if you eventually sell your home after the mortgage is paid off, there's a good chance that "you'll walk away with a payoff," even after subtracting the costs of ownership, says Hodges. (Of course, homeowners who face foreclosure or declining home values often find themselves without such equity to show for their monthly mortgage payments.)
From taking in a renter in a spare bedroom to renting out driveway space to commuters, Hodges says homeowners are increasingly finding ways to monetize their homes. In cities with scant green space, some homeowners even rent out small patches of grass for people who want to grow vegetables.
Renters can face an unexpected eviction notice if their landlord suddenly decides to sell the home, rent to someone else, or otherwise end the lease. That's one reason Boston University economics professor Laurence Kotlikoff says that for older people with a fixed income in particular, he recommends homeownership (and a paid-off mortgage). "It's important for older people to be in a home that they own as security against a landlord," he says.
Interest rates remain at historical lows, and at the same time, home prices in many areas remain soft. Trulia points out that deals are especially appealing in suburban areas, compared with the more expensive cities. Overall, Trulia says, asking prices on homes went down 0.7 percent over the last year, while rents went up by 5 percent.
Of course, buying isn't for everyone. If you might move soon, or you want the flexibility to upgrade your digs with just a month's notice, or your job outlook is uncertain, then renting can be ideal. Hodges says potential buyers should first consider the transaction costs of homeownership, which can add up quickly, especially if a buyer doesn't plan to stay put for very long.
In this ever-changing housing market, the decision to rent or to buy can be as confusing as ever. Remote work, climbing mortgage rates, rent increases and changing lifestyles are all now factors to be considered when making this critical decision.
Renting can eliminate those costs, as many times the rent includes maintenance expenses such as appliances breaking down, leaks and garbage removal; however, it does not shield you from all costs. Find out in advance what services are and are not included in your monthly payments. In addition, find out what protections are in place regarding rent increases.
With more people working from home, they now have more flexibility than ever regarding where they live. If you are no longer required to commute to a job, renting might make more sense. You can try a location and still have the flexibility to consider a move if you want to try another location when your lease ends. Renting provides much more flexibility.
On the flip side, empty-nesters who sell their homes and decide to move to downsize or move to a new location should consider renting first. Despite having the financial resources of a home sale, renting provides the necessary flexibility this stage of life might require.
One of the biggest differences to consider between renting and owning is the ability to make the place your own. When you own real estate, you can do anything from upgrading appliances to a complete gut renovation. If you purchase in an apartment building, inquire about any building construction or renovation restrictions, which may limit what you are able to do.
Renters, in most cases, are very limited in terms of changes. Most are only able to paint and must have the place returned to its original condition and color scheme when moving out. If you have a strong design sense or a desire to customize your home to your distinct needs, then you more than likely need to buy a home. With rentals, what you see is what you get.
Homeowners are allowed to deduct mortgage interest and property taxes when they file tax returns each year. Using the same example of $300,000 home purchase with 10 percent down, a mortgage calculator shows a total monthly housing cost of about $1,731, with $1,231 in principal and interest (using a rate of 3.625 percent), $300 in property taxes, insurance of $67, and mortgage insurance (required when putting less than 20 percent down) of $133. The tax deductions homeowners get for mortgage interest and property taxes save $335 per month in taxes, so subtract this from total monthly housing cost of $1,731 to get an after-tax housing cost of $1,396. This significant savings from tax benefits can often make owning the same as, or cheaper than, renting.
You can buy a home and then sell it within a few years, but the costs are hardly worth it. Aside from initial closing and moving costs, you may be paying more closing costs when selling a home in addition to other costs, such as repairs and renovations that would make the house sell for top dollar.
Occasionally, renting can be cheaper than buying a home because of the upfront costs involved. This includes a down payment, closing costs, moving costs, any renovations and other home maintenance tasks.
In both these cases, it might be a good idea to rent so you have time to figure out what you want in a home, what your budgeting needs are and what kind of home might be the best fit for the lifestyle you hope to have in the future.
There are risks for both renting and buying a home to keep in mind. Although you can build equity when buying a home, there are some financial risks. For example, if you sell your home sooner than planned, you may not be able to make up for what you spent in closing costs or renovations.
Whether you would save more by renting or buying can depend on a few key factors. One is your location and the prices of other homes or rentals in your area. Next, you need to consider your credit score and if a lender would find you creditworthy.
Another consideration: Can you afford a home that will fit your lifestyle in the next few years, or will a tight budget limit your options? For many people, renting or buying comes down to what they can afford at the moment.
There are tax advantages. If you itemize your taxes, rather than take a standard deduction, you can deduct the mortgage interest and property taxes you pay annually. When you factor that in, it can make owning a home on par with or lower than renting. Consult a tax professional to see if you qualify for these deductions.
Many homeowners will agree that the privacy, peace, and stability of owning a home is beyond price. Purchasing a house means that your children will always have a place to call their own, the opportunity to go to school in a good district, and friends who live nearby.
As you can see, there are many reasons why buying a home is better than renting. Not only does it help you save on rental costs and help build your net worth, purchasing a home empowers you and your family and gives you the stability that you need to create lasting memories as you build a life together.
When deciding what you can spend on a house, make sure your mortgage payment (including principal, interest, property taxes, homeowners insurance, PMI and HOA fees) will be 25% or less of your take-home pay.
If you have student loans, credit card bills or any other debt to stomp out, consider your apartment your stomping ground. You can hang out there with your cheap renters insurance, letting the landlord pay for all the maintenance, while you knock out that debt.
Buying a home is a huge decision, and picking the right mortgage is a huge part of that process! Here's why the 15-year fixed-rate mortgage might be one of your best options when it comes to buying a house.
Before making a hasty move, review the details and make the financial decision that is right for you. While owning a home may be beneficial for some, many people find renting to be a better option. There are examples that show renting can save consumers money. However, the decision to rent versus buying a home is a personal decision. 041b061a72
