Today’s housing market is hot, and you may be considering switching your current living situation. Rental homes can be convenient if you do not want to deal with the nuisances of homeownership. But buying a home is an opportunity to own property and could be a significant financial investment.
Renting and homeownership have pros and cons, and you may prefer one over the other. Your family, lifestyle, and budget may influence your decision to rent or own.
Consider the Upfront Cost
Housing is likely one of your biggest expenses. Rent or mortgage payments can be a quarter to a half of your income, depending on where you live and what you do. Homes cost hundreds of thousands of dollars, but you may spend more if you rent for your entire life.
A home loan can cover the purchase price of a new home, but you will still have initial costs. Lenders usually require you to pay between three and 20 percent as a down payment, which is still typically thousands of dollars.
You may also need to cover associated fees. For instance, the bank may require you to pay for a home inspection, title fees, and other miscellaneous home buying costs.
When it comes to renting, a landlord can request one or more months of rent and a security deposit upfront. A security deposit may be the same as a month’s rent or around that amount. The landlord usually returns the security deposit after you move out, as long as you have not caused damage to the home or have otherwise broken the lease agreement.
Think About the Ongoing Cost
Your mortgage payment amount is generally based on your loan’s term and interest rate. The monthly fee may include other mandatory expenses, such as property taxes and homeowners’ insurance.
In many cases, a monthly rent payment is more than a mortgage for the same property. Your rental price generally covers the mortgage payment if the landlord is still paying for the home. The property owner may incorporate other costs they are responsible for paying.
Landlords can also earn an income from rental payments. If you are a renter, you are paying someone else’s mortgage, income, and homeowner responsibilities. Renting can seem like throwing away your money since you will not reap the financial reward when the property owner sells the house and recoups their investment.
While your lender sets the mortgage payment on what you owe, your landlord can set rent based on their expenses and other factors. Property owners usually charge higher rents for homes in desirable areas with wanted amenities. And landlords typically charge more if you have pets.
What About Extra Costs?
As a homeowner, you are responsible for any related expenses. If the water heater stops working, you typically have to pay to replace it. You may have hundreds to thousands of dollars in unexpected housing costs each year.
When you rent, your landlord is responsible for fixing broken appliances and other issues. Rent and utilities are usually your only housing expense as a renter. However, your lease agreement may have clauses that add to your costs, such as paying for lawn services if you do not want to mow or being financially responsible for appliances and fixtures you break.
Lifestyle Factors Play a Role
Do you want flexible or long-term housing? Renting allows you to switch homes frequently, while homeownership usually means staying in one place for a few years. Buying a home may not be realistic if you move to different areas frequently.
Likewise, you may not want homeowner responsibilities if you are rarely home. If your job keeps you from home five days a week, you may not want to spend your weekend mowing the yard.
You may want to buy a home for your family to grow and have the stability of a community. Moving has several expenses, from buying packing supplies to hiring movers. A home can be a positive financial investment, as property value usually increases over time.
Homeownership may be necessary if you have a big family or a lot of pets. Not all rentals accommodate animals and have sufficient space. Even if you can find rentals that meet your household needs, they may be more costly.
The area where you live can influence your housing options. Major cities tend to have more rentals, whereas suburban and rural areas have fewer.
Your interests and preferences may place you in an area with plentiful or limited housing choices for your budget. If you have children, you may want to live in an area with good schools. Or you may want to live near water if your hobbies include boating and other sports.