SHOULD I RENT OR BUY A HOUSE THIS YEAR? In This Economy, Which Housing Option is Best for My Family?

There are both advantages and disadvantages to owning a home when you consider the economy. The best way to determine whether you should rent or buy is to consider the pros and cons of both positions, then see how they relate to your current home situation. 

Although it may seem preferable to buy a home because of the security that it offers, there are costs associated with homeownership that may not be ideal for you at this time. You must consider all aspects of both renting and buying before you arrive at a decision, and know that these pros and cons may change over time as well.

Here are some considerations to make when deciding to buy or rent:

Owning a home isn’t always a good investment.

Avoid buying a home as an investment vehicle to turn a quick profit. While some real estate investors make a lot of money, many do not, particularly in a down economy. It’s generally better to buy a home if you want to stay in it for five years or more.

In most cases, houses appreciate over time. Staying in a home longer allows the home to appreciate so that some of the expenses that come along with homeownership can be offset. Here are a few of the expenses to consider:

  • Closing costs (both at purchase and at sale)
  • Repairs and improvements
  • Commissions
  • Taxes
  • Insurance
  • PMI

Before deciding whether or not to rent or buy a home, it is a good idea to run the financials through a rent vs. buy calculator, like this one at Nerdwallet.

Homeownership requires a down payment.

A substantial down payment is typically required for most borrowers looking to secure a mortgage loan. Moreover, with housing prices skyrocketing so quickly, the amount needed for a down payment also continues to rise. But don’t worry!

There are several ways to purchase a home with less of a down payment. FHA (Federal Housing Administrations) typically requires a much smaller downpayment than conventional loans. Keep in mind, if you are putting less than 20% as a down payment, you will have to pay Private Mortgage Insurance (PMI), typically .05 – 1% of your loan. This could add several hundred dollars a month to your monthly house payment. Accordingly, this is something to consider when weighing whether or not it rent or buy a home.

Mortgages include interest payments.

Although mortgage interest is deductible in some situations, this is not always the case. If your interest payments, along with your other deductions, aren’t higher than the standard deduction on your tax return, there’s no tax benefit to paying mortgage interest. The higher your interest rate, the higher your monthly payment and the less of a percentage goes to lower your principle loan balance each month.

Homeowners are responsible for repairs.

As a homeowner, you must make repairs yourself or turn to a professional service provider. Unlike renting, there’s no landlord to contact for repairs. You’ll also be responsible for the day-to-day upkeep and maintenance costs as well. Repairs and ongoing maintenance can get very expensive, time-consuming, and do not always add value to the property.

Homeowners have additional insurance requirements.

While you’re making payments on your mortgage, you must pay for homeowner’s insurance. Even if you’ve already paid for your home, you should still obtain this valuable insurance to protect your most important asset. Though homeowner’s insurance can be quite expensive, the cost of not having insurance could potentially be catastrophic.

  • Renter’s insurance is less expensive than homeowner’s insurance.

Renting doesn’t earn equity.

By paying rent monthly, you’re not building up any worth in the property, but the owner of the property is. Renting has no investment value at all, unless you’re saving money by renting that you can invest in other investment vehicles.

That is not to say renting cannot have other benefits. As mentioned above, there are additional costs that are inherent with homeownership. In addition, there are other responsibilities like maintenance and regular upkeep that are not your responsibility when you rent.

Homeownership does offer benefits.

Homeownership provides your family with a sense of community, pride, and family security. You can design, decorate, and improve upon your home however you like without worrying about landlords, lease agreements, and the potential for lease termination.

Renters can save money.

As a renter, you don’t have to pay homeowner’s association fees, property taxes, homeowner’s insurance fees, and maintenance charges. Renters can save significant money in comparison to buying, which can be put toward other investments and purposes like saving, building a business and other wealth-building activities.

Let’s be honest, sometimes it is just cheaper to rent. If you have run through all of the calculations and you find that you are saving a significant amount of money – it may be better for you to stay renting. If, however, homeownership is something you dream about – do your due diligence. Work through all of the pros and cons and decide what choice is best for your individual circumstances in the long run.

There are definitely benefits and drawbacks to both of these positions, renting or buying.

It’s important to weigh all of these pros and cons before making a decision. Your best housing solution depends on your individual family and financial situation.

Choosing wisely based on your own needs will enable you to live more comfortably, secure in the knowledge that you’re doing what’s best for you and your family.

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