Renting or Owning, What Is Better for You?

In a real estate market where home prices are rising, many have begun to reexamine the idea of buying a home, choosing instead, to rent for a while. But often, there is a dilemma: should you keep paying rent, knowing that rent is rising too, or should you lock in your housing cost and buy a home?

Let’s look at both scenarios and analyze the pros and cons of each:

Renting

With the housing market crash in 2008, many homeowners lost their homes and became renters. According to Property Management, “the number of households renting their home … rose from 31.2% of households in 2006 to 36.6% in 2016”.

Some choose to rent because it is more convenient for their lifestyle. Those whose job requires frequent moves need the flexibility that a 6-12 month lease agreement gives them so they can move to their next assignment!

Many renters believe that renting is cheaper because they do not have to pay for maintenance and repairs. (Not true! Landlords work those expenses into your rent and other fees). Another reason:  many rent because they feel like they cannot afford the down payment and closing costs required to buy a house, due to their inability to save much after paying their monthly expenses.

That can be true.  Nearly 1 in 4 renters spend at least half their household income on rent. In 2017 the “severely” burdened renters’ rate was 24.7% with 24.9% reporting they were “moderately” burdened.

Renting also brings some financial disadvantages. Homeowners can take advantage of tax deductions that let them claim their property taxes and mortgage interest. Additionally, there is a big risk that your rent will go up every time you renew your lease, as we know the median asking rent has been increased steadily since 1988.

One of the major challenges with renting is that you don’t have a space to call your own. When you rent, you are paying your landlord’s mortgage, and therefore they are the beneficiaries of the equity gained from paying that mortgage.

Now let’s explore the other side: Homeownership

There are many financial and non-financial benefits of becoming a homeowner. So, let’s just focus on the one big difference between renting and owning, the ability to lock in your housing cost.

Assuming you will have a fixed-rate mortgage, your costs are fixed. You will know exactly what your mortgage payment will be for the next 15-30 years.   The only changes to your fixed housing expense would be the increase of property taxes and your homeowners insurance.  And if you pay HOA dues, perhaps that cost could increase if your association voted on it.

However, the majority of your housing expense, which is the mortgage itself, is fixed.  Fixed for the term you chose.  The homeownership rate in 2018 was 64.4%, and has been on the rise. Those households locked in their housing cost rather than wait for their landlord to raise their rent again.

What are the disadvantages of owning a home? Well, it is a long-term financial commitment. It is not easy to pack quickly and move. You will need time and good planning to do it in a short amount of time.

You do need to save money as preparing for your mortgage requires a down payment, closing costs, and moving expenses.  And while there are down payment programs, you still need to be prepared. Creating a buying strategy with your Lender is an important first step.

And when you do become a homeowner, you will have costs to maintain the home and you’ll be responsible for repairs those items that need repair. Home Warranty programs can help offset some of those future expenses, so be sure to check that out when it is your time to own.

Thoughts to Consider

Like everything in life, there are pros and cons. What is best for you depends on your situation, your goals, and your desires.   If you are interested in becoming a homeowner and want to discuss the pros and cons, contact your local real estate professional that can help you review your current situation and then learn more about the Lending process.

 

Karen Jones is a Licensed Mortgage Loan Officer (NMLS 307015) located in Phoenix and serving Arizona families with their home lending needs. As a Banker of over 32 years, Karen is dedicated in ensuring that her clients are well educated and prepared for their new home purchase.  Learn more about our 100% Financing programs and obtain your Underwriting Credit Approval before you start shopping. Let a home loan specialist guide you by contacting Home Loan Officer, Karen Jones from AmeriFirst Financial, Inc. located in Phoenix, Arizona.

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Karen Jones does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Karen Jones will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

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