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  • David Cade

Buying vs Renting a Home



Renters are often in a quandary as to whether it makes sense to continue renting or buy a home. Buying a home makes more sense, particularly when taking a long-term view. Yes, even in the current real estate market.





Renting – Advantages


Renting can have advantages depending on the part of the country you live in. The primary advantage is your monthly rent payment may be less than an equivalent mortgage. A secondary advantage is the fact that maintenance and improvements to the property are the responsibility of the landlord. Still, these advantages pale in comparison to the disadvantages of renting.


Renting – Disadvantages


The disadvantages of renting are significant. If you have any opportunity to purchase a home or condominium, it almost always makes sense to do so.


The biggest disadvantage of renting is the loss of value. Assume you rent a residence for $1,000 a month and you live in the residence for two years. You will have paid a total of $24,000 in rent, a pure expenditure. The $24,000 is simply gone and you will have nothing to show for it other than the time you spent in the home.


Rent payments can be closely aligned with a landlord’s mortgage payment. Using the above example, let us assume your $1,000 rent exactly equals the mortgage payment. For two years, you have indirectly paid the landlord’s mortgage, helping them build equity in the house by paying down the loan. In addition, the landlord has benefited from the appreciation of the property. But the landlord does have the responsibility of maintenance and care of the property.


By appreciation, I simply mean the amount of increase in the value of the house. If the rental appreciated $20,000 in two years, the landlord has received a windfall. They may have seen a gain of $24,000 in appreciation and payments lowering the mortgage. As a renter, you have made this all possible. The landlord no doubt would like to thank you.


Owning - Advantages


There are few things in life that compare to the day you finally buy a home. You may find that homeownership has many rewards. Here are just a few advantages to homeownership. You will likely be building home equity with every mortgage payment. Having a set fixed-rate mortgage helps with predicting your expenses for the long term. There may be a tax advantage such as interest tax deductions and other benefits. Home values may increase over time. Improving your credit as you maintain making your regular mortgage payments on time.


Owning - Disadvantages


If you have never owned a home before you might be surprised by some of the costs you could run into. I wouldn't say these are disadvantages to owning a home just costs to expect.


The cost of home maintenance and repairs if needed. If the hot water heater or furnace needs replaced/repaired that is now your expense, not a landlord's. Property taxes and insurance is an additional expense on top of your mortgage payment. Most people escrow these into their monthly new payments. Owning the home also binds you to a given location. Keep in mind that the process of selling your home can take months depending on the housing market. That can make it harder to respond to starting a dream job across the country or moving closer to home to care for older parents.


Only you can know if homeownership is right for you. Make sure you spend time evaluating the pros and cons of buying a house. Wherever you are at in your home purchasing process Fair Way Lending is here to help and will gladly answer any questions or concerns you may have along the way.

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