Renting vs. Buying a House: What to Consider
Renting vs. Buying a Home
If you’re thinking of buying a home, the current housing market is less than desirable for potential homeowners. Housing inventory is low, home interest rates are rising, and buyer competition is as intense as ever. All of these factors beg the question: Should I rent or buy a house? We’ll help answer this question by exploring the benefits and considerations of renting and owning a home.
Benefits of Renting
Here are some of the benefits of renting a home.
Flexibility — Renting offers tons of flexibility. At the end of your lease, you can decide to move to another home in the area or relocate to a completely different city. Also, you can downsize to a more affordable living situation if you find your rent too expensive. Homeowners usually have a harder time breaking free from their homes due to the fees associated with buying and selling a home.
Same monthly payment — If you sign a fixed-rate lease agreement, you know the amount you’re paying each month, allowing you to budget more efficiently. Plus, some landlords may include important expenses such as utilities and storage into your monthly rent.
No maintenance or repair costs — Landlords assume full responsibility for any maintenance, renovations, or repairs that need to be done. For example, if your air conditioner stops working, you can give your landlord a call, and they’ll hire someone to fix or replace it.
Considerations for Renting a Home
If you think renting is the best option for you, keep these considerations in mind.
Landlords — While it’s a benefit that landlords handle maintenance and repair costs, they still own the property, so you must abide by the rules and obligations laid out in the leasing agreement. Landlords also have to power to raise your rent, sell the property, or evict you.
No renovations — Although you may hang decor and add personal touches to your rented home, you can’t undergo major renovations like a kitchen remodel or carpet installation.
No ownership — You’ve probably heard the saying, “Renting is throwing away money.” This isn’t necessarily true because you have to pay to live somewhere one way or another. However, each month’s rent only buys you the right to live in your home for another 30 days. It doesn’t contribute to any form of ownership, equity buildup, or investment.
No tax benefits — Renters aren’t eligible for the tax breaks available to homeowners, such as the mortgage interest deduction, property tax deduction, and home equity loan. However, renters can still take advantage of the standard deduction available to all taxpayers.
Benefits of Owning a Home
Owning a home can provide several benefits for you, including:
Tax deductions — When you buy a house, you can deduct some of your home expenses — e.g., mortgage interest, property taxes, home equity loan, etc. — and potentially get huge tax savings.
Building wealth — Owning a home can be a great long-term investment because of the possibility of appreciation, which is the increase in home value over time. Furthermore, as you pay down your mortgage, you start to build equity — the difference between your current mortgage balance and your home’s current market value. Increasing equity and appreciation opens up more investment opportunities, such as buying stocks or other properties.
Stable monthly payments — Most mortgages are fixed-rate loans, meaning that you have the same mortgage payment every month for the duration of your loan. On the other hand, renters are at the mercy of their property owners. If there are no rent control laws in your city or state, landlords can raise your rent by as much they wish
Freedom — Homeowners have much more freedom to customize their homes than renters. You can build a swimming pool, have multiple pets, paint the walls purple, etc. Whatever you envision for your home, you make it a reality, barring city restrictions.
Considerations for Buying a Home
If you’ve made up your mind to purchase a home, here are five useful points to consider before making the leap.
Debt: Financial experts suggest eliminating as much non-mortgage debt as possible before purchasing a home. For someone looking to buy a home this means eliminating credit card debt, car loans and, if possible, significantly cutting down student loan debt. Studies of mortgage loans suggest that borrowers with a higher debt to income ratio are more likely to run into issues making monthly payments.
Credit: Having good credit can make your ability to secure financing for a home easier or improve your chances for getting your rental application approved. Credit can also impact your mortgage payments. FICO scores run from 300 to 850 and the higher the score, the lower the perceived risk for the lender, which could qualify you for lower mortgage payments. If your credit is not quite up to par, consider continuing renting while you work to improve your score.
Research: Prepare to do a lot of research before purchasing a home. For example, location can determine if and how much your home appreciates in value. Look into tax rates, schools in the area and community resources like fire and police departments, grocery stores and financial institutions. If you are unsure about a neighborhood or area of town, renting may be your best option until you learn more about where you’d like to live. Research mortgage lenders who fit best based on your income, savings, credit score and budget.
Budget: Whether you are renting or buying, little things like bringing your lunch to work can cut out unnecessary expenses that can be deposited into your savings account.
Savings: If you’re in the market to buy a home, setting aside a significant amount of cash is necessary for your down payment and can also be used to furnish or renovate your home. Experts note the ideal down payment for a home purchase is 20 percent of its price.
The Bottom Line
Is it better to rent or buy? There’s no definitive answer. Choosing whether to rent or buy a home depends on factors such as your financial situation, lifestyle, and personal goals. Renting has benefits like no property taxes, no association fees, no maintenance costs and more flexibility, but buying means you own your home and are building equity in that investment.
As you consider whether to rent or buy, be sure to factor in insurance costs to protect your property in the event of an unexpected or unforeseen loss. If you’re looking for quality coverage without breaking the bank, Zeiler Insurance provides reliable insurance options for both renters and homeowners.
Dan Zeiler
dan@zeiler.com
708-597-5900 x134