If the busted real estate bubble left you confused about whether it’s better to rent or buy a home, you are not alone. According to a recent USA Today story, the percent of people who believe that home ownership is part of the American dream has gone down from 77 percent in January to 72 percent in August.
“It’s a confusing time in the market,” the story says. “On one hand, mortgage rates are at record lows, and in many cities, home prices have plummeted. But on the other hand, home foreclosures continue to rise, and the economy remains weak.”
There are many free, online rent-to-buy calculators that can help people weigh their options. But here’s a quick look at the pros and cons of renting or buying a home.
1. Low upfront cost – A security deposit plus a month or two of rent is all the money you need to become a renter. That’s a whole lot cheaper than forking over a down payment on a home.
2. Less responsibility – Another benefit to renting is having less responsibility when something breaks or something needs repair. Not only does fixing and maintaining a house require money (or time and skill if you fix it yourself) but you must also invest time to get it done. Someone has to call the professionals, get estimates, and take time off from work to oversee their work. When renting, your landlord is responsible for all of this. You just have to give them a call to give them the bad news.
3. Good credit not a must – When buying a home, having good credit is a must to get approved for a mortgage. When renting, if you have less-than-perfect credit you may still be able to qualify if you are able to show that you have a stable job and are willing to have your rent come directly out of your bank account every month.
4. Flexibility – The best part about being a tenant is the flexibility of picking up and moving if say you’d been offered an out-of-state promotion or need a change of scenery. There are usually yearlong contracts, but these can sometimes be terminated. If you’re a homeowner, you don’t have that luxury.
Home ownership pros
1. Build equity – When renting, the payments are nothing but an out-of-pocket expense. When buying a home you are building equity and wealth for the future. A mortgage is a built-in savings plan as your home maintains or gains value. Learn how a Bargain Babe reader bought her house in cash.
2. Tax incentives – You will love being a homeowner come tax time, when you can write off all the interest from your mortgage. You may qualify for additional government rebates or incentives.
3. Low mortgage rates – An advantage to owning a home right now is that mortgage interest rates are low. If you already have a home, learn to negotiate a lower mortgage interest. Low interest rates can make owning a home cheaper than renting depending on your local housing market.
4. Home ownership pride – Owning a home affords you the freedom to paint your walls canary yellow or plant a garden. Renting is another story. You may not even be able to paint the walls.