Everyone’s heard the phrase, “why rent when you can buy?” or “don’t pay for your landlord’s mortgage…pay for your own mortgage” but that’s a very one-dimensional way of thinking and doesn’t apply to everyone.
Homeownership is something you should take on when you’re ready, and we understand there are so many circumstances surrounding people’s decisions to rent, we are here to educate you and discuss the pros and cons of both renting and buying to help you determine what’s best for your stage of life and desired lifestyle!
We are big supporters of finding a home that is right for YOU – and a home can mean different things to different people – such as living with family, living with roommates, renting, living in a multi-family (whether as a tenant, or investor – to live in one unit and rent out the others), owning a condo, or owning a home. Whether you plan on renting or plan on buying, we want to make sure the next step makes sense for you. Sure, there are incredible financial benefits that come with owning a home, but there are also financial risks, and you’ll have to bring a lot more cash to the table than if you were renting, as in the form of a down payment and closing costs.
Renting doesn’t mean you’re throwing away all your money. For some, renting may make more sense than having a mortgage right now, and can allow you to save for future financial goals. There are benefits to both buying and renting, depending on your timeframe, end goal and stage of life.
Owning a home isn’t for everyone, however owning a home will benefit you financially in the long run.
Here are some scenarios where renting may make more sense than buying:
- You’ve just moved to a new town or neighborhood and want to get a feel for the area before you commit to a location or neighborhood, or you’re between homes – you sold your home and are looking for your forever home
- Your personal situation has changed, such as you’ve just moved in with your partner and want to get a feel for how that goes, you’ve just gone through a breakup, your lease was up with your roommates, or you’ve been living with your family, and you may not be ready to own a home yet
- You want to see how you can “manage your money” and budget, and learn more about how you comfortable you are with fixed monthly expenses, without the additional concern of repairs needed on a home
- You don’t have enough money for a down payment (which is something many potential buyers struggle with). Renting allows you to save money – however, if you are thinking of buying, in some cases you only need to put down 3% of the purchase price
- In the same sense, you’re trying to repair your credit (which can affect your mortgage rate. High credit scores equal lower mortgage rates) and renting will allow you some time to do so
- You don’t want to have to maintain the lawn, parking area, garage, exterior spaces, trash pickup and the like
- Maintaining a property or items in a home are not something you need to deal with because when something breaks, landlords have to make and pay for most repairs
- Sometimes utilities and/or HOA fees are part of the rent, or are covered by your landlord. You also are not responsible for paying property taxes
- Renters insurance is far less expensive than homeowner’s insurance. According to Value Penguin by LendingTree, “The average annual cost of homeowners insurance is $1,083 nationwide, while the average annual cost of a renter’s insurance policy is $187.”
- Once your lease is up (or even beforehand), you’re free to move without having to pay 5-6% of your sale price to the Realtor for listing fees. But remember, a lease is typically 12 months and may have buy-outs if you want to break the lease early
- We’ve seen cases where renters make deals with their landlords to do regular lawn maintenance, handy work at other properties, or general upkeep for a reduced rent. This is a great way to build rapport and trust with your landlord and potentially keep your rent the same every year
- You can negotiate some additional terms in your lease agreement, such as the above, or offer lower rent than was listed, extend/shorten a lease instead of the standard 12-month lease, include pets but not a pet fee, or negotiate parking fees
Here are some scenarios where buying may make more sense than renting:
- You’re actively investing in your future and building equity. It is a forced savings account – one that you are essentially paying yourself for every month.
- You will have price in ownership and can put your own touch on your home! You can open walls, put walls up, choose paint colors, trim details, window and siding styles, your garden features, etc. Home OWNership means you can make it your own!
- There are tax benefits when it comes to renting – mortgage interest and property tax payments are typically tax deductible which would reduce your overall tax burden
- There is the option to withdraw funds from your home, think home equity loans or lines of credit. Using your homes value as collateral could enable you to take out a loan to make home improvements (additions, pools, repairs, etc) on your home, pay for education, or make another investment
- There is the option to refinance to a lower monthly payment. If you bought at a higher mortgage rate, there is always the option to refinance if/when mortgage rates decrease, lowering your mortgage payment. This was something we saw many homeowners take advantage of when rates dipped to 3% in 2020 and 2021 (it is very unlikely that if you rent, your rent amount will decrease year over year)
- Your mortgage payment will be the same every month for however long you have the loan for. If you rent, your rent payment will be the same during the duration of your lease. A landlord can increase the rent up to 10% per year
- You can negotiate items in a home purchase, such as a lowered purchase price, closing costs being paid by the seller, rent back options, sellers paying off items like a sewer assessment, etc. or renegotiate items that come up in an inspection to have repairs made or a credit given for necessary repairs.
- For the most part, property values increase and appreciate over time, but no one can predict the timeframe that a home will appreciate, or the off chance that a value will decrease. Market values depend on inventory and the economy, we are not immune to market crashes or economic declines. If you bought at a high price and sell in a buyer’s market, there is a chance when you go to sell your property, it will be worth the same or less than what you bought it for.
- There are incentive programs for first time homebuyers, like CHFA, as well as loan products such as VA, FHA and USDA loans
- You have a lot more flexibility when it comes to the number and type of pets you can have in your home. Some landlords don’t allow any pets, if you own a pet that can make finding a rental more difficult
- In the same sense, you have more flexibility with the number of vehicles you have on the property, the number of people living in your home, renovating or remodeling, and making home “yours.” There are far less rules as well (however, if you live in a condominium the association may have noise restrictions, pet breed restrictions, or the parking lot may only allow you to park one or two cars)
- If you plan on living in an area for at least 5 years, buying a home is a smart option
- You won’t be kicked out of your own home! If a landlord decides to sell the property, you will likely have to vacate if the new owner does not want a tenant (if your lease is up) or if they can get a higher rental amount from a new tenant
Regarding upfront and ongoing costs, there are more when you plan on buying. These include a down payment (which can be as low as 3% but we recommend the higher the down payment, the stronger your offer will be, which is key in this competitive market). Maintenance, HOA fees (if applicable), property taxes, homeowner’s insurance, and ongoing repairs will all be something you will pay for when you own a home. But remember, you’re building equity every time you make a payment or an improvement.
While there are many benefits to owning your own home, there are benefits to renting as well. Owning a home is the “American Dream,” yet unattainable for some. While you’re figuring out where you want to buy, renting is an excellent option. We never want to rush you into buying a home, as good as the financial benefit may be.
Think about your long-term goals, where you see yourself settling, what kind of lifestyle you want to have, and factor in things such as your job, your partner, pets, the school system, and location.
We are here to help you with every step of the way, whether you are renting or buying and can help you create a financial plan for today and your future. Reach out to us today with any questions.
