Picture this: you have a choice between buying with a mortgage or renting. Your answer? No easy feat? Don’t fret; you are not alone. Unfortunately, there’s no one simple answer. The good news is that it is a matter of your preferences.
Buy vs. Rent a Home
You know that about 9.9 million Americans have little to no confidence in making their next mortgage or rent payment on time. The latest U.S. Census Household Pulse Survey states that. So before we try to find a better way out, it makes sense to mention another 2021 Rental Affordability Report from Attom Data Solutions. It looks like owning a three-bedroom home is more affordable than renting a three-bedroom property in 63 percent of the 915 U.S. counties.
Both renting and buying are big decisions. Both have their pros and cons. And what about other factors that affect your choice? Think about your lifestyle. Do you plan on staying in an area for long? Finally, the financial side of your story is not the last violin, too.
What About Renting?
Many say renting is like throwing money down the drain. Yet, in times where you need flexibility, renting seems like a better choice. If low maintenance living is a top priority for you, then renting can be the solution. So, if you can’t afford an expensive home or don’t need it because you are investing or traveling, buying might not make good financial sense.
But one of the most important issues is the cost of the rent. Sometimes it takes more than half of income and people don’t know where to get money to pay rent. But don’t panic. Check Fit My Money proven advice on how to act in such situations.
No matter what anyone says, the rental property market is strong. Even better, it is forecasted to grow at a CAGR (compound annual growth rate) of 8 percent from 2021 and reach $2216.2 billion in 2023. The key thing to keep in mind here is that rental housing is not a good choice for low-income earners. As the Harvard report states, 72 percent of renters earning less than $15K per/year were severely burdened, along with 43 percent who earned up to $30K.
Pros:
- Low initial deposit and down payment fees;
- No need to pay property taxes, homeowners insurance, or maintenance costs;
- The monthly rental fee may not include the utility bills;
- Flexibility (pack the things up and move to a new place);
- No responsibility for repairs;
- Can build credit if the landlord reports rent payments to the credit bureaus.
Cons:
- Can’t build equity;
- Rental payments grow over time as rental prices increase;
- A landlord can sell the property;
- Limited choices depending on vacancies;
- A landlord might not be responsive;
- No tax benefits;
- In case of sudden calamities, unsecured houses for rent will not guarantee protection.
What About Mortgage? Pros and Cons to Consider.
One of the key factors to consider when applying for a home loan is how long you plan to stay in your home. If you prefer flexibility (to pack up and leave right away), renting will be your best choice. You won’t have to deal with a down payment, closing costs, loan charges, appraisal fees, and other things.
Renting a home for 10, 20, or 30 years could cost you a fortune than buying in the long run. Yet, if you plan to stay over years, homeownership would be a better investment. You get the freedom to sell it later, rent it out, and it can be a legacy for children.
Pros:
- Can build equity and credit;
- Stable mortgage payments with a fixed-rate mortgage;
- More stability (especially with schools);
- Tax advantages (interest deduction);
- The monthly mortgage rate is lower or equal to the rental fee;
- Freedom to control over the house (improve or upgrade it);
- Home value can increase.
Cons:
- A greater financial responsibility, including for all maintenance;
- Variable bank rates can generate extra expenses;
- Higher upfront and ongoing costs;
- Home taxes can increase;
- Extra expenses beyond mortgage payments;
- Less flexibility;
- Home value can decrease.
Home Loan vs Rent a Home: Evaluate Your Priorities
While no one has a crystal ball, knowing the importance of buying or renting a home is crucial. In the end, after making your rent vs. buy calculations, it boils down to your priorities, objectives, and personal finances. Whatever the case, buying a home is exciting. And once you’re clear on why you want to become a homeowner, apply for a home loan. But before, nail down your budget and know your credit score. Just because there are several mortgage types, your report will help you determine your options.
The benefits of a home loan don’t come without costs and limitations, of course. And that’s not an exception for renters, too. When renting, you aren’t building value. What’s more, you get no credit score improvement. When reviewing the pros and cons of renting a house, be sure to weigh out the expenses equally. If you find that renting is a more economical way to go, go for it. But keep in mind that the US has a shortage of 6.8 million affordable rental homes available for low-income renters.
When you buy a home, you build a strong credit history. When you make your monthly loan payments on time, you demonstrate to other lenders that you are a good borrower. In the future, to make home improvements or buy a car, you’ll need to borrow. A better credit history shows that the risk of you defaulting on a loan is lower.
Sure, big financial decisions like a home loan can be scary. Credit issues stand in your way to dream homeownership? The good news is that there’s still a chance to become a better candidate for a mortgage. To do the math, you can use a mortgage calculator to understand better where you’re standing.
Next Steps
Taking the simple step of getting in touch with a qualified loan lender might be the smartest financial decision you make. Taking out a home loan is not a guessing game. Instead, it’s a serious financial investment that can make a tremendous difference to your wealth. But, there’s a lot to get organized. If you’re currently planning to purchase, refinance, or learn more about home loans, find a lender who will assist you.
