Which is better, buying vs. renting? This debate has raged for many years, with many believing it’s best to own a home rather than throwing money away on a rental you’ll probably never own. However, times have changed, and in many instances, renting can be the more cost-effective option. Buying also isn’t without its advantages. The truth is: there is no right or wrong answer. It depends on your needs, goals, and budget. To learn more about whether you should or buy, read on!
Rent vs Own: What Are the Benefits & Drawbacks?
As mentioned above, neither renting nor buying are “bad” decisions — it simply depends on your circumstances and the best choice for you. For many years, buying and owning a home was a symbol of success, but with the housing crisis, that mentality has shifted and buying a home isn’t the universal dream. So, which course of action offers more advantages for you: buying or renting?
Advantages of Buying
- Chance to build credit and equity
- You are your own landlord
- Freedom to customize the property
- Freedom to rent out the property
- Ability to settle down
- Possible access to tax benefits
What to Consider About Buying
- You’ll need a sizable amount of money upfront, as well as paperwork
- A decline in the property value can cost you money
- You’ll need to budget for a mortgage and additional expenses
- Many markets are high-cost and low-inventory
- Maintenance is your responsibility
Advantages of Renting
- Less expensive up-front and less paperwork is needed
- Ability to move from place to place
- Your landlord is responsible for maintenance
- Drops in the property’s value aren’t your worry
- You can build credit if your landlord reports to credit reporting bureaus
- You’re not responsible for property taxes
What to Consider About Renting
- Your landlord can increase the rent or sell the property
- There may not be a lot of rental options, depending on where you live
- Relocation may be necessary for a number of reasons, such as poor maintenance on the part of the landlord
- Paying rent doesn’t build equity
- There are no tax benefits to renting
Rent vs. Own: What to Consider
- Buying Requires a Large Down Payment: You can expect to be asked for a down payment of about 3% of the home’s purchase price.
- Your Debt-to-Income Ratio: Generally, conventional lenders go by the 28/36 rule, where your mortgage, taxes, and insurance shouldn’t exceed 26% of your pretax income and other combined debts shouldn’t exceed 36%.
- Home Ownership Expenses: The costs associated with buying and renting aren’t similar in the least. When you rent, you’re responsible for the security deposit, monthly rent payments, utility bills, and renter’s insurance (if you choose to purchase it). Maintenance costs aren’t in your wheelhouse, because you’re not the property owner. This changes when you purchase a home — you’ll have a down payment, mortgage payments, property taxes, homeowner’s insurance, utility bills, and maintenance costs.
- Real Estate in Your Area: Sometimes, buying a house just isn’t in the cards, because the local housing market is at a low point. If you live in an urban area like Detroit, use the Case-Shiller index to view current real estate values and how they compare to market fluctuations in the past.
Is it better to rent a house? If you’re not in the financial position to cover the costs associated with owning a home, then yes, you’re likely better off renting. Moreover, if flexibility is a must for you at this point in life, then you’ll probably want to avoid putting down roots by buying a home for which you’ll be fully responsible.
Get More Advice from Public Service Credit Union
Whether you choose to buy vs. rent, we can help you reevaluate your budget, avoid common mistakes, and make the right spending and saving choices for you. If you’re exploring mortgage loans, we can help you save money with competitive rates and flexible terms. Contact us to learn more about your options near Romulus!