Comparing the Costs of Renting and Owning A Home
To rent or to own…that is the question. Whether you’re thinking of ditching the renter’s lifestyle for a home you can call your own, or you’re tired of the financial and physical responsibilities that comes with home ownership, you might be wondering which option is right for you.
In today’s market, buyers can find some great bargains – but what about the overall cost to own a home? Is it worth it? Depending on your situation, it may be financially wise to buy a home. Or, it could be smarter to rent for a while.
Take a look at these factors to help you determine whether you should buy or rent:
Buying a home is an investment. Probably one of the biggest investments you’ll ever make in your life. Since real estate typically appreciates over time, if you buy a home for a fair price today you can reasonably expect that it will be worth several years down the road. In the meantime you need to be capable of paying regular, monthly payments.
Renting, on the other hand, is sometimes equated to “throwing money away”, since you’re not building equity or receiving a tax break. It might not be fair to say renting is a waste of money, as many people prefer the carefree lifestyle, and you are receiving a place to live in exchange for your monthly rent payment.
2. Financial capabilities
Many of the people who got into trouble during the housing crisis bought homes at prices they couldn’t really afford. This all too often resulted in foreclosures and major financial losses for the owners. This doesn’t mean you shouldn’t buy a home – it simply means that if you do decide to buy a home, make sure it’s priced within your means. Have an emergency fund built up that will cover three to six months worth of living expenses in case of an interruption in income.
Renting is much less of a financial committment. If you lose your job or have some other type of financial hardship the worst case scenario would be that you need to break a lease in order to move to a less expensive home. In many cases landlords and property managers will even work with you in a situation like this.
3. Long-term costs
Owning a home is expensive. In addition to the upfront costs of a down payment, fees, and the purchase itself – a homeowner will spend a lot of money on maintaining their home over time. Unlike renting, if something attached to the house breaks, you have to pay to fix or replace it. Estimate that you’ll spend about one percent of your home’s value on maintenance, assuming it’s not a fixer upper and you’re not making any major renovations. Some years it’s likely to be less, and some years more. For example, painting your home’s exterior, replacing the roof, or replacing the siding could each cost several thousand dollars, even for a modest sized home.
So, to recap:
It could be financially wise to rent if you…
* Do not have the capability to pay for the long term costs of a home
* Prefer not to have the responsibility that comes with owning a home
It could be financially wise to buy if you…
* Have the financial capability to make regular, monthly payments on a home priced within your means
* Want an investment that could pay off in the future