To rent or buy a house? We’ve all been faced with this question at least once in our lives. To arrive at a decision that makes you happy requires that you evaluate each option according to;
- What you can afford
- How long you intend to stay in the home
- Whether you want flexibility or stability
- Your ability to be responsible for house repairs and maintenance
- Your family, financial, and career goals
Whether you’re living in your own home or a rental can influence your life in a number of ways; from determining your lifestyle to determining the amount of savings that you would collect over the years.
Why do we see people buy homes every day when financially they would be better off renting? Is it that important for them to have a place that they can put down roots? Or is it that they just see homeownership as another investment that’s open to growth and as a way that they can cut down on their taxes?
Similarly, people are attracted to the minimal responsibility and flexibility that renting a home offers. They forget that they would accumulate a larger net worth over the years if they simply bought a place.
Between renting and buying, the bias often bends towards ownership. Why not? It’s big profits for everyone from real estate agents to home improvement stores to mortgage lenders, and so we are fed the message that becoming a homeowner holds the key to happiness. But owning is not always better than renting, nor is living in a rental always simpler than owning. Determining whether and when to rent or purchase a house is a personal choice that rests on your needs and inclinations at that particular time.
It’s time to weigh the comparable costs, benefits, and disadvantages of owning versus renting a home.
The cost of homeownership/ buying
Upfront and closing costs
- The Down Payment refers to the amount of money that’s paid upfront on buying a house and is expressed as a percentage of your home’s purchase price.
- Home appraisal costs are fees paid to an appraiser to determine the actual value of a home against its offer price. You may also need to remove home inspection fees for a licensed home inspector to evaluate the house for potential problems and defects.
- Other fees that you may be required to pay upfront include property taxes and First year’s homeowner’s insurance.
You have already acquired the loan and moved into your new home, but now comes the hard part. Not only will you be required to make loan payments every month, but also take care of your property taxes, private mortgage insurance, utilities (water, electricity, garbage collection), and maintenance.
What’s more, you’ll need money for furnishing and moving if you are a first-time homebuyer. However, these are one-time costs.
The cost of renting your home
Renting does not involve an expensive purchase process, hence it has less upfront expenditure. On moving in, your landlord will require from you a security deposit, first month’s rent, and a refundable or nonrefundable deposit. You may also need to pay for moving costs.
As a tenant, the highest cost you’ll have to contend with is the monthly rent. The amount of rent you pay will depend on local market conditions, size and condition of the rental, number of occupants, and location. In the case that utilities are not included in the rent, they become the renter’s responsibility.
Advantages and disadvantages of buying
1. Build equity over time- Unlike renting, every dollar you deposit into your loan’s principal inches you closer to actual ownership of the property.
2. Owning a home can open you up to some tax benefits such as homestead exemption and federal tax deductions.
3. You can turn your home into a source of income by renting out extra space or the entire property. This is one way to help you with your mortgage or insurance payments on it.
4. For most, buying a house sets them up for permanent settlement. As such, you can put down roots in your community, creating a strong sense of belonging.
5. Owning a home allows you to decorate and perform home improvement projects to your heart’s content. This creates a sense of creative freedom.
1. You never know if or when home values in your area will shoot down. Hence owning a home also opens you up to the risk of holding a depreciating asset should you decide to sell in the future.
2. As a homeowner, you’ll constantly have to contend with all uninsured upkeep and repair works on your home. If you’ve never had a toolbox, now is the perfect time to get one.
3. When purchasing a house, the upfront costs can be a little bit overwhelming, although this depends on the type of rates that you get on your mortgage. Choose your lender wisely.
4. Most homes are not sold furnished. Unless you had a similarly sized and fully furnished residence previously, you’ll have to spend time, cash, and energy fitting your newly purchased house.
Advantages and disadvantages of renting
1. Renting a home lifts the maintenance and repair responsibility off your shoulders. If a pipe bursts or the toilet backs up, you only need to call your janitor or landlord instead of an expensive repairer.
2. If you work in a job that requires frequent relocation, then you’re better off renting a house than buying. This makes your moving convenient in terms of time and money.
3. Unlike in buying a house where your credit history plays a huge part in determining your eligibility for a mortgage, renting is a straightforward process with no much reliance whatsoever on your credit standing.
4. A depreciating home value does not affect you; just your landlord.
5. Some building owners take care of the cost of some or all utility bills, including the inessentials such as cable television.
1. As long as you are party to a standard lease agreement, every dollar that goes to your rent is gone forever. It does not matter how long you live in your rental home, or how commendable an occupant you are, you cannot build equity as a lease tenant.
2. Renters are exemplified from any housing-related tax benefits that homeowners enjoy.
3. As a tenant, you cannot exercise total control over your rent. Rental property owners increase rents to match market increases elsewhere, to drive out current tenants, and for other reasons.
4. Limited housing security. Renters live with uncertainty when it comes to how long they can remain in the rental units.
Closing Thoughts. Be sure to keep an open mind as you work toward a conclusive decision. Take your time. It is better for you to wait and make a step in the right direction than to rush into an option you’ll come to regret.