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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.
Renting Pros
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.
Welcome to Bargain Babe! I’m Mara, and I’m so glad you’re here. I am an obsessive bargain hunter and penny pincher, and I am determined to live a full life without EVER paying full price.
I think one’s lifestyle has a great deal to do with making a choice between renting or buying. There were years when renting an apartment was the best situation for me. However, when my husband and I bought our home many years ago, it was also right for us. I’m a nester, so for me having my own home is right. My youngest son is an apartment dweller, and that’s good for him, as he’s about to relocate to CO for his job, and the landlord is willing to give him a break on his lease agreement. What works for one doesn’t necessarily work for another.
Here is a Con to Home Ownership – When one is deciding whether to purchase or rent, you should also think about your plans for the future. We bought a one-bedroom condo 4 years ago and just thought we would be able to sell it after a couple years and get something larger. Since it is now worth 1/2 of what we paid for, we are not able to sell it. We can’t short sale it because both of us are still working, so there is not financial hardship. We considered having kids, but now we would be stuck with growing kids in a one-bedroom. Might work for a little while they are a baby but at some point they will need their own room. Also, we can’t rent it out because our mortgage is about $1500 more than what we could rent it out for. The lesson is – never think of homeownership in the short term. You need to look far into the future and buy something big enough for your future plans (kids, etc.) or just wait until you can. Never buy thinking that you will “move up to a larger place” because that may never happen or you may have to wait 10-15 years instead of 2-3 for it to happen.
@Christina Ellis You make such a good point I wanted to repeat it. “The lesson is – never think of homeownership in the short term.” That is very true and unfortunately a lot of people with otherwise excellent finances are now underwater on their mortgages. I hope you and your partner are able to start a family eventually.
We bought our home 5 yrs ago and it is worth 60% of what we owe on it. I SO wish we had waited, but who knew? So, if you’re even thinking about wanting to buy a house, NOW is the time to do it!
I just bought a house 10 months ago. I took advantage of the low mortgage rates, the great prices on houses right now and I was also a first time home buyer, so I received the Obama stimulus incentive. My house has already appraised at 95K more than I paid for it. I never could have bought a house 4-6 years ago when mortgages were high and home prices so grossly inflated. I am only paying $65.00 more in mortgage then I was for my rented apartment!!! And I have a lovely 3 bedroom, 2 bath – so much more space. For some people, right now may be your perfect storm to buying a home.
I think lifestyle and future plans are key to pulling the trigger either way.
My husband and I will be moving back east in April. We plan on renting for anywhere from 3-5 more years – even though we plan on starting a family during that time. When we buy a house, it’ll be with a significant down payment and a realistic mortgage, with a large savings account and emergency fund in the background. It’s not something we feel rushed into. To us a home (that is, a place to live that we love) isn’t dependent on owning it.
@Lisa Morosky ~ Obviously, you and your husband have given this a lot of thought, and have reached some very sensible conclusions about your home situation. I’m sure you’ll find the perfect spot somewhere down the road, when the timing is right. In the meantime, enjoy yourselves, wherever you might be.