Many Americans believe that owning a home is the ultimate goal. It is part of the American dream. But homeownership is not for everyone, and people now realize that renting is a viable option. A Pew Research analysis reveals there are more renters now than ever before. And a large number of renters come from the millennial generation.
Money plays a significant part in deciding whether renting vs buying a home is the best choice. It’s not the only factor you should consider as you have to think about your long-term plans. Location and your career goals also play a role.
You should understand what to expect when renting vs buying a home. It will help you make a decision you can live with. Here’s a quick comparison between the two:
Equity is the difference between the price of your house minus what you still owe for it. The more you pay down your mortgage, the higher your equity grows. Homeowners can capitalize on this. They can sell their house when the value goes up.
Equity isn’t immediate, though. The first few years of your mortgage go towards paying the interest. But over time, a larger amount of your monthly payments goes towards your loan balance. This is when you start building equity.
You’re making a long-term investment when you buy a house. Property prices in the United States went up 28% from 2009 to 2019. It’s inevitable for the value of a home to depreciate. But the property becomes more valuable over the years.
While a house is a good asset, it is not liquid. You can’t sell it as fast as you would a car, stocks or bonds, or other assets. You also have to keep paying your mortgage while you are selling your house.
One of the best things about buying your first home is the tax breaks. Your mortgage interest is deductible. You can also get some tax breaks on your home equity loan, property tax, and closing costs. There have been changes in the structure of the tax law. The increase in the standard deduction means new homeowners won’t enjoy a lot of tax breaks.
The monthly payment is one thing people weigh on in the renting vs buying a home debate. Homeowners often choose a fixed-rate mortgage. They pay the same interest and principal amount throughout the loan duration. The stable payment makes it easier to manage one’s monthly budget. Mortgage payments can change. It’s rare, but it can happen with adjustments on home insurance costs and property taxes.
Renters don’t have that luxury. Most landlords raise the rent for every lease renewal. But compared to mortgage costs, rental payments are more affordable. So if there’s a limit to your finances, renting is a better option.
There are several initial fees you have to pay when renting. You have to pay the first and last month’s rent when you sign the contract. There are also security deposits and non-refundable application fees. Despite that, renting is still less expensive upfront.
Even if you get a first-time home buyer’s loan, you still have to shoulder the down payment and closing costs. You also have to pay property taxes. These taxes are steep in some states, which is why some people can’t afford to buy a house. Renters save more money every year because they don’t have to worry about this tax.
Buying a home is the biggest investment you’ll make in your life. It also carries a lot of risks. Property prices in your area can fall. Unexpected damage to your home can clean out your savings. You don’t have to worry about these things when you are renting.
Houses deteriorate over time, especially when they’re not maintained. Repairs take time and can be costly. Maintenance is also done every season to make sure the house is ready for the change in weather.
You don’t have to worry about these things if you’re renting. You can call the landlord if the air conditioning system breaks or the exterior paint is peeling off. They will take care of it. While the landlord will shoulder the bulk of the expenses, you might have to shell out some money. But this only happens when repairing items that you frequently use.
The millennial generation prefers renting. It’s because they like the idea of relocating anytime they want. They are more mobile and tend to change homes every two years. It’s why renting makes more sense to them. You are only required to stay until your lease expires. Once it’s over, you can either renew or live anywhere you want. First time homebuyers can’t do this because they have a mortgage.
Your finances place limitations on where you can buy a house. It might be beyond your budget to buy property in New York City but renting it is possible. Renters can also downsize without problems. But it’s more difficult for homeowners because selling your home and buying a new one takes time.
Did the article help you decide whether to rent or own? You should also read this primer on Shopping Interest Rates.
Selling your home isn’t a struggle with Reach Home Loans. We are one of Florida’s top mortgage lenders. Our clients are our number one priority, and hundreds of our clients testify to that. We offer conventional loans, FHA, and VA loans.
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