Should you buy or rent a home?
Is home ownership the right path for you? Should you rent instead? If you rent will you be jeopardizing the possibility of home ownership in the future due to rising real estate values? How fast will your family grow and how much space is needed for your family and their activities? How much money do you have to pay for housing? When is the best time to buy a house?
With the rising cost of home ownership in America today, combined with low mortgage rates, many first time buyers are challenged by the answers to these questions.
Buying and owning your own home is more complicated than just having the money for the down payment and monthly mortgage payments. Owning a home requires a tremendous commitment of funds, time, and attention. For some people, owning is not the best or only way to have a comfortable and safe living environment.
The following topics should help make your decision a little easier.
For some, renting can be the best option. Considering the high cost of a down payment on a home, financial considerations are of top priority. Renting can be viewed as a temporary solution while you plan your future.
You are excused from the bulk of home ownership responsibilities such as:
Your rental many include amenities such as:
There is no large down payment, only a security deposit.
Many of your monthly expenditures (rent, utilities) are fixed making budgeting easy.
You are not taking any equity risk on the property should there be a downturn in the market
Close proximity of neighbors often create a sense of security.
If you do not like where you live, moving is relatively simple.
It is easier, especially if you travel/commute often
- No special tax deductions.
- There are no equity gains in the rising value of property.
- Space and storage is usually less than a home.
- Changes to accommodate your life or growing family cannot be made or are limited in scope.
- Rents can rise with inflation and or supply and demand in the rental market.
- You will probably have restrictions on noise level, pet ownership, or children.
- Advantages and disadvantages of buying a home
- The home may increase in value, resulting in a significant gain in net worth.
- The emotional high derived from ownership and the sense of status created both at home and in the community.
- Homeowner's tend to have better credit ratings.
- The longer you live in a home, the more equity you build that can be leveraged using an emergency loan.
- Mortgage payments contribute to an investment, particularly if the property is located where it increases in value over a period of years.
- If you have a fixed loan, your payment will remain relatively constant for the life of the loan.
- The interest paid on your loan and taxes are legitimate income tax deductions.
- Ownership may contribute to security, especially in retirement years when income normally decreases.
- A homeowner can borrow against his/her equity, as the value of the home increases.
- More space may be available for family members and their activities.
- As a homeowner you have the freedom to make improvements and changes to the home and surroundings as desired (although a development or association may have restrictions and prohibitions).
- Home ownership can contribute to the general well-being and sense of "roots" of the family, especially for children.
- Homeowners generally are concerned about community affairs and how they may affect their property.
- A substantial down payment is needed.
- Owning a home requires a substantial commitment in time, emotions, and money.
- Homes may decrease in value if the neighborhood deteriorates, changes quickly, or the real estate market suffers a decline.
- Due to the initial expense of buying a home, financial resources may be limited or reduced for other purchases or activities.
- Maintenance and repairs are inevitable and could be costly.
- Part of home ownership includes procuring enough income to afford insurance of all kinds including loss of the house as a result of a natural disaster.
- Budgeting is cumbersome and a must in preparation for maintenance, repairs, home improvements, and/or home ownership/association dues.
- Depending on where you live property taxes could increase dramatically.
- The cost of buying a home should also include the cost of moving into it and furnishing it.
- Shifts in the neighborhood could drastically affect ones lifestyle.
- Security is an issue if you are not home often due to travel.
- Unexpected loss of income due to job termination or unemployment may limit money available for home ownership costs.
Decisions, decisions. The very best way to proceed is to list all the factors about your life that are important to you.
- What type of living situation would make you feel the best about yourself?
- Do you have certain neighborhood preferences that would be limited by either decision?
- Which decision would strap you the most financially?
- If you have family (married, children) which decision would impact their lives?
- Which is more important to you, what type of place you reside in or the furnishings within, or both?
- What are your lifestyle requirements?
- Do you like to entertain?
- Do you own a boat or RV?
- Do you need a garage because of your hobbies)?
- What is the distance you would have to travel to work, school, church, shopping?
- How important is privacy?
- How much time and what skill sets do you need to have to devote to maintenance and upkeep?
- Are You Ready for Home Ownership
Buying a house commits you to a long-term relationship with a mortgage and requires a considerable amount of time and energy that most homeowner will tell you becomes second nature. American consumers spend from 21% to 54% of family income on their housing. How much each family spends on housing depends on many factors. Three basic considerations that can help a family determine how much home they can afford are:
- The amount of take-home pay the family can reasonably expect.
- The family's living costs and other debt payments.
- The total amount of housing expenses, including: taxes, insurance, energy, furnishings, maintenance, and mortgage payments.