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Renting vs. Buying Should I Purchase a Home or Continue Renting?

Authored By: Manatee Community FCU on 8/30/2019

rent or buy

Given the rather high upfront costs associated with buying a home, it’s no surprise most young people choose to start their independent lives renting instead. As they advance in their careers, save money, get married, and start families, most end up buying a home. Many older homeowners, on the other hand, are often ready to downsize and end up selling their home and moving into a rental.

Purchasing a home is an investment in your future. It’s a HUGE decision and should not be taken lightly. If you’ve been renting for a long time and feel like you’re ready to buy a home, or are a homeowner wondering if renting makes more sense, you’re in the right place! In this article, we will be discussing the pros and cons of renting and buying. Hopefully we will be able to give you better insight into your options, facilitating your decision-making process.

Renting a Property

A common misconception first-time homebuyers have is that since their current rent is about the same as a mortgage payment in terms of monthly cost, why not buy a home instead? While it may seem that the cost is almost the same, when you own a home there are additional overall expenses associated with it. This means that to measure apples to apples you’ll have to take into consideration a lot more than just monthly rent vs mortgage payments. Here are some pros and cons of renting:

Pros

Less financial responsibility – As a renter you don’t have to maintain the home. If any of your appliances break or malfunction it’s the landlord’s responsibility to pay someone to fix it, not yours.

No long-term commitment – Once your lease is up you can renew or you can simply move to another rental property. If you change jobs or plan to leave your rental, you don’t have to worry about selling the property.

Lower upfront costs – When renting a home, you will most likely need to put down the first month’s rent along with a security deposit. If your credit isn’t all that great you may also have to pay your last month upfront. Once you move out, provided the place is in acceptable condition, you’ll receive some or all of your deposit back.

Cons

No equity – As a renter, you’ll be paying rent every single month, however, that money never goes toward ownership. Instead of paying off your mortgage, you’ll be helping pay off your landlord’s mortgage.

Restrictions on personalization – When you rent a home you don’t get to fully personalize your space. The most you can expect to do is temporarily paint the walls and bring in your furniture. If you paint your walls, be prepared to repaint them the original color before you move out.

No tax advantages – Since you rent a home instead of pay a mortgage, you can’t deduct mortgage interest from your taxes. That means your landlord likely gets tax breaks for mortgage payments made largely with what you pay him or her for rent.

Buying Your Own Home

Buying a home is an important decision that needs to be taken seriously. It may not necessarily be the best choice for everyone. If you have a nomad lifestyle and move around a lot, you may be better off renting. If you own a home but can’t keep up with the demand of maintaining it, renting may be a smarter decision.

However, if you’re ready to make payments toward securing your future, a home can be a great investment. If you’re tired of dealing with landlords and having restrictions on how you can and can’t personalize and expand your space, purchasing may be the better option for you. We’ll go further into details regarding what questions you should be asking yourself to determine whether you are ready to buy a home, but first let’s discuss the pros and cons of buying a home:

Pros

Equity – When you purchase a home, part of your monthly mortgage payment is applied to your principal. This means that every time you make a payment you are building equity. Eventually you’ll pay the home loan off and own your home outright; eliminating monthly home payments from your budget.

Homes also typically appreciate over time, which means that your home value will likely be higher than what you paid for it. Home improvements, demand for land, and inflation are also factors that can determine how much your home’s value will increase over time.

Tax breaks - Mortgage interest payments may be tax deductible. That’s right; every single mortgage interest payment you make may be tax deductible. NOTE: With recent changes in the tax law, we advise you to speak with a CPA about possible deductions per your unique financial situation.

Personalization – When you own your home you can design and decorate it to your heart's content. If you remodel or upgrade your home, those improvements may further increase the value of your home.

Lower Down Payment Programs – There are programs available that provide options for lower down payments pending you meet specific criteria. For example, FHA (US Federal Housing Administration) loans usually require as little as a 3.5 percent down payment versus the traditional 20 percent.

Cons

Long-term commitment – Purchasing a home means that you are committed to your mortgage payment and your home. If you move, you’ll either need to sell your home or rent it out and assume the responsibilities of a landlord.

Maintenance costs – Everything that needs to be maintained in the home is your responsibility. You must maintain your lawn or pool (if you have one), all your appliances, electrical, plumbing, and roofing. If you need to replace or fix something, the financial responsibility will be entirely yours.

Possible devaluation – While historically property values across the U.S. have risen, there is always a possibility that they will fall in a specific area due to a variety of reasons and changing market conditions.

 

Should I Purchase a Home or Continue Renting?

If you’re still wondering whether you should purchase a home, try asking yourself the following questions:

  1. Does it financially make sense to buy a home?
  2. Do you have enough for a down payment?
  3. Are you emotionally ready to commit to purchasing a home?
  4. Do you have the skills and financial means required to maintain a home?
  5. Is your job secure / stable enough to meet monthly financial obligations?

Before you take out a mortgage and purchase a home, do your research. Make sure that it’s a decision that will likely benefit you in the long run.

Manatee Community Federal Credit Union is Here to Help!

Each individual’s financial situation is unique and readers can talk with a credit union representative at 941-748-7704 ext. 125 when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.



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