To Rent or to Buy?

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Are you considering the idea of buying a house or are you settled on renting? There are many considerations to be made when making the decision. You must look at the pros and cons, as well as your own financial situation.

Advantages of Renting:

·         Relocating is much easier when you are not held down with a mortgage. It is a lot easier to switch leases than it is to sell your house and move.

·         Maintenance is not your worry. If something in your rental home breaks or malfunctions, the fix can be as easy as a phone call to your landlord at no expense to you.

·         You will not have to own a depreciating asset. Although most housing markets have stabilized or rising home prices, there is no guarantee that your home’s value will increase in the future.

Disadvantages of Renting:

·         It is possible for your monthly rent to increase.

·         You will not build equity. You will have a place to live, but you will not have an asset to sell once you are ready to move.

·         You need the owner’s approval to remodel or paint. Some landlords will allow you to paint your house or apartment with permission, other’s will not. You will need permission to upgrade appliances or any other changes.

Buying a Home Pros and Cons

There are enticing emotional and financial advantages to buying a home, although it isn’t for everyone.

Advantages of Buying:

·         You will have the chance to build equity. Regardless of whether or not your home builds value over the years, you will still be building equity as long as your home value is maintained.

·         There are tax advantages for home buyers. Your interest payments from your mortgage, as well as your property taxes can be deducted on your federal income taxes.

·         You will not have to deal with changing house payments. If you decide on a fixed-rate mortgage, your interest and principal payments will stay the same during the duration of the loan. It is possible, however, for your property taxes and homeowners insurance to change.

·         You can use your home as a possible future investment. If you choose to move in the future, you can rent it out to generate income. You can use the rental money to make your new mortgage payments.

·         You can be involved with the community. Once you are a homeowner in a community for years, you will get to know the community and be a part of volunteer groups, homeowners’ association or other beneficial community projects.

·         It is your choice to decorate as you’d like. One of the best advantages of being a homebuyer is to change the environment based on your tastes. You may not have as much freedom with your home exterior if you live within a homeowners’ association development, but you can paint the inside whatever colors you’d like and you can still choose to put hardwood floors throughout your home if that is what you choose!

Disadvantages of Buying:

·         You are responsible for your home maintenance. You will need to set funds aside for unexpected expenses, such as an appliance break, furnace service or window replacement.

·         You will be living in an illiquid asset. If you choose to sell your home, it may take longer than you’d like to sell and you may not get as much money for it as you would like.

·         Property taxes are an additional expense for a homeowner. Property taxes can rise at any given moment.

·         The value of your home can decrease with time. Most people think the value of your home increases over the years, however, there is no guarantee that your house will not lose value.

·         You must have homeowners’ insurance if you have a home mortgage. If you rent, it is recommended you carry rental insurance, however, it is not a requirement. Typically, your insurance premium is paid along with your mortgage payment.

·         In order to buy a home, you must have a cash investment. You will need a down payment and closing costs will also need to be paid.

Other Considerations:

How long are you going to live there? If you can’t commit long term, you should probably not buy a home. In order to build equity and survive a market that is often questionable, you should prepare to stay at least seven years or more if you plan to buy a home.

Think about the costs of buying a home. Typically, when you rent, you pay your monthly rent, plus a security deposit, then you get the security deposit back as soon as you move as long as the home is in good condition. If you buy a home, you will need a deposit to make an offer, which can be up to 5% of the price of the home. You will need a down payment and closing costs will be an additional 2% to 5% of the sale price. You will need to pay for the move itself.

Regardless of what your choice is, there are many advantages and disadvantages to both renting and buying. Everyone’s situations are different and you must choose based on yours alone.