Rent vs Owning
Many renters dream about eventually owning their own home. Being a homeowner can have several benefits, from giving you more control over your area to helping you create equity and possibly profiting from growing house values. However, it could also be one of your biggest financial investments ever, and it’s not always the best course of action.
If you rent, you can leave when your lease expires. But it also means that you can be forced to relocate quickly if your landlord decides to sell the land or convert your apartment building into condos. Less dramatically, they could simply raise the rent beyond your means.
In its simplest form, home ownership refers to house ownership. Owning a home involves a number of procedures, including making plans for a home, budgeting for the down payment over time, searching for a property, haggling, applying for a mortgage, creating contracts, and registering the property. If you rent, you can leave when your lease expires. But it also means that you can be forced to relocate quickly if your landlord decides to sell the land or convert your apartment building into condos. Less dramatically, they could simply raise the rent beyond your means.
Both owning and renting have benefits, but which is ideal for you will depend on your situation.
Here are the 5 important questions to think about as you weigh this important choice.
1. Are you financially ready to buy?
Why it matters: If you overspend, you can find it harder to handle a financial emergency or save for other significant objectives like retirement. Additionally, in today’s competitive real estate market, you can find it difficult to have an offer approved if you have a low credit score or insufficient down payment.
Your income: It might not be the best moment if you don’t have a reliable, adequate income.
Your down payment: Keep in mind that in order to avoid paying for private mortgage insurance (which safeguards your lender in the event you are unable to make your mortgage payments), you normally need a down payment of at least 20%.
Your credit rating: If you don’t have good credit, you might not be able to get a good mortgage rate or even get a loan authorized at all.
2. What Kind of House Suits Your Needs the Best?
When buying a residential property, you have a variety of choices, including classic single-family homes, townhouses, condominiums, co-ops, and multi-family buildings with two to four units. Depending on your goals for becoming a homeowner, each choice has advantages and disadvantages.
It’s up to you to choose the kind of property that will enable you to achieve those objectives. By selecting a fixer-upper, you can also save money on any type of purchase (although the amount of time, sweat equity, and money involved to turn a fixer-upper into your dream home might be much more than you bargained for).
3. Will you stay for a few years at the very least?
Why it is important: There are a ton of one-time costs associated with buying, such as broker fees, mortgage origination fees, and title insurance.
What to consider: If you’re expecting to remain less than three years, it probably doesn’t make financial sense to buy. The longer you stay put, the more time you have to spread out those payments and for your home to potentially increase in value. Since you typically won’t be eligible for a capital gains tax exclusion (and so will have to pay capital gains tax on the full amount of any rise in your home’s value), staying shorter than two years can have specific tax drawbacks.
4. The costing
For years, the rule of thumb stated renting is cheaper than buying. That might not always be the case, though. In some locations, buying a home may be more affordable than renting, but you will probably have to put more money down at the beginning. Your best financial and goal-fitting option is what you should choose.
4. Renting or Owning- the difference.
Renting: The initial payment is lower. Even though most landlords need a security deposit in addition to the first and last month’s rent, this is still less than what you would probably pay as a down payment. It’s possible that you won’t be able to modernize or customize your home. However, if you do require repairs, they typically cost less. Most likely, your landlord is in charge of repairing items like leaky faucets. Future rent increases could occur. Relocating may be simpler; if you anticipate soon changing locations or occupations, you have less responsibility leaving a rental.
Owning: A down payment is typically required for mortgages, and larger down payments typically result with better terms. Closing expenses may also be owed. Renovations can typically be used to personalize or modernize your property (some of which may increase its value). Repairs and upkeep, however, fall under your purview. Over time, home values can increase and decrease. Your personal wealth may rise if you are able to accumulate equity, which is the market value of your property less any outstanding debt.