In this rent vs. buy post, we will tell you about the most important things you need to consider when making a decision about acquiring a home.
Buying a home is perhaps the most significant financial outlay most people will make. That’s because, for most people, their home is the most expensive thing they’ll own. The decision to buy a home versus rent one is, therefore, an important one that requires considerable thought and analysis.
So what are some of the things to consider when making a real estate rent vs. buy decision? Here are your answers:
1. Why Do You Want To Own A Home?
One of the first questions people seeking to purchase a home need to answer is “why they want a home.” Having a clear definitive answer to this question can help in making a buy vs. rent decision.
To be clear, there are enormous advantages to home ownership, but there are also some downsides. For example, here are some clear advantages to home ownership:
Advantages Of Home Ownership
- A sense of personal stability and security
- You may accrue equity in your home
- Mortgage interest and property taxes are tax-deductible
- Autonomy to decorate and landscape your property to your taste
- You can take out a loan against your property
- You can sell your property whenever you like
- Personal satisfaction and confidence.
These are just some of the advantages of owning a home. There are also some downsides to home- ownership.
Disadvantages Of Home Ownership
- Personal responsibility for repairs and maintenance
- It may be hard to come up with the down payment for the home
- You are responsible for property taxes for as long as you own the property
- You are also responsible for HOA fees (if applicable)
If the advantages of owning a home outweigh the disadvantages, then the decision is pretty simple, except for one thing: can you afford it?
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2. Can You Afford The Home?
Buying a home comes with a significant initial investment: the down payment. Can you afford a down payment of between 3.5% to 20% of the property price? Being able to pay the monthly mortgage is great, but actually acquiring the property may require more money than the monthly mortgage payment. You need to make a lump-sum down payment and a closing cost payment.
Sometimes, depending on how you negotiate your loan, you can
Some people take out a personal loan to make their down payment and closing cost. This is a good strategy is you make a good income but haven’t saved up enough money for the purchase.
Resources for down-payment loans and assistance:
- Credible.com
- USA.gov/buying-home
3. How Good Is Your Credit Score?
An excellent credit score will not only help you get a mortgage loan, but it will also ensure you get the best available interest rate.
Because mortgage loans are typically large amounts that span over long periods, usually 15 to 30 years, a lower interest rate can save you thousands of dollars over the life of your loan.
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If you don’t have a high credit score, you might want to build your credit before making the purchase. Failing to do so may, on the one hand, get your mortgage loan application denied, or get you approved, but with an exorbitant interest rate.
Here are some credit repair resources:
4. How Long Do You Plan To Live In That Location?
Sometimes, if you have a career, family, or other goals that might require you to move, or move a lot, then you need to consider that when deciding on whether to buy or to rent.
Most homeowners stay in their homes for a long time, especially when the value of their home isn’t appreciating.
5. Why It Might Be Better To Rent
Contrary to what most people think, acquiring a home is not always the best choice for everybody. For example, if you live in a great neighborhood where the rent is affordable when compared to a mortgage, then renting might be the best choice for you.
Here are some of the advantages to renting.
Advantages Of Renting
- Avoidance of costly repairs and maintenance costs
- You are not responsible for property taxes
- You can easily end your lease and move
Disadvantages of Renting
- There’s a limit on how much you can transform or decorate the property
- You cannot build equity on the property
- There are no tax benefits to renting
- You have to live by landloard rules
- You have no control over rent increases
- The landlord may evict you whenever they please
Buy vs. Rent: Bottom Line
The decision to rent vs. buy a home is not a simple binary one. There are many factors that go into making that decision. For example, can you afford to buy a home, what is your income now, do you have job security? What is your credit score? What is your career trajectory? Do you have a family now or in the near future? The answers to all these questions can play a role in choosing whether to rent or buy a home.
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