Buying vs. Renting
The decision of renting vs. buying usually starts with personal finances. Begin by calculating the monthly costs for each scenario, including mortgages, rent, taxes, insurance, fees, potential maintenance, and other expenses. The answer could vary greatly depending on the conditions in the market, location, and the type of housing. A more competitive real estate market could mean higher prices. A less competitive market could mean dropping values. It’s also not as simple as comparing a monthly mortgage payment to a monthly rent payment.
Factors in deciding renting vs. buying:
- Monthly mortgage payment vs. rent: The price of the monthly payment will be the start of a comparison to rent.
- Availability of a down payment: A larger down payment will mean smaller monthly payments.
- Length of stay: Planning on staying in the home longer will spread things like closing costs over a longer period of time. Experts recommend a minimum of 5 years.
- Employment: If employment is unstable, it might be better to add to a safety net than invest in a home.
- Credit rating: A higher credit rating will mean a less expensive mortgage.
- Down payment: How much of a down payment is necessary and is it readily accessible?
- Closing Costs: These can account for 3-5% of the purchase price of a home.
- Taxes: Property taxes will depend on the local laws, but could be another large expense.
- Maintenance: Depending on the age and size of the home, this could be a significant expense.
- Insurance: Either home owner's or renter’s insurance will be required to protect personal belongings.
- Security deposit: Although usually refundable at the end of a lease, an additional 1- 1 1/2 months’ rent is due with the first month’s rent.
- Homeowner’s Association Fees: For condominiums or co-ops, HOA fees can represent almost the same amount as a mortgage payment, depending on which services are included.
- Stress: It is much more stressful to be responsible for all of the repairs, but it is also far more satisfying for many to know that they are building equity for their future.
- Location: Depending on the location, it may cost less to either rent or buy.
- Flexibility to move
- Potential lower monthly costs
- No property taxes
- Low maintenance
- Less stress
- Easier with poor credit
- Low initial investment
- Fixed monthly costs
- Limited options
- No asset at the end of a lease
- Unable to customize
- No equity
- No tax deduction
- No control over rent increases
- Build equity, which can compensate for higher monthly costs
- Potential profit upon sale
- The psychological satisfaction of fulfilling the American Dream
- Mortgage interest is tax deductible
- Can borrow from equity when necessary
- Invest for retirement
- More stable community
- Mortgage interest may be tax-deductible
- Limited flexibility to move quickly
- Possible to lose investment via foreclosure or declining home values
- More stress
- Responsible for all maintenance
- Property Taxes
- Down payment required