Renting vs. Buying a Home: The Pros and Cons
Author: Olga Pokumeiko
Maybe you’ve been offered a job in a new location or your current living situation is simply not working for you. There are many situations which will make you choose between renting or buying a home. Since both have their pro’s and con’s, you’ll have many things to consider before deciding on either one. Here is a guide to help you in your decision-making process.
Table of Contents:
1. The Process of Renting a Home
When a desirable property is found, renters can schedule a tour with the landlord. To apply for a house, renters must fill out a rental application and have money for application fees and screening fees. The application fee and screening fee are per person, usually $35-$75 dollars, and are usually paid with a check.
You will also need supporting documents to back up your application such as recent paystubs or your credit score. After you have submitted all the required items, you will wait for approval which can take up to a week.
Landlords will do a background and credit check, will check into previous rental relationships, and will process your proof of income. If your credit is low, a landlord may decide to ask you to have a co-signer who can help pay in the case that you don’t, in order to approve your application.
Next comes the security deposit. The security deposit will allow the landlord to hold the house for you, and it is held by the landlord until you move out. This deposit will be returned upon move out unless you damage the house or can’t pay the rent. What you owe will come out of your deposit.
You will receive whatever remains. The security deposit can be a large sum of money, from a fraction of the monthly rent to a full month’s rent paid upfront. You will then get to sign the lease and move in on your estimated move in date. You can also opt for renter’s insurance which is sometimes optional for around $12 dollars per month.
2. The Process of Buying A Home
The first step to buying a house is gathering a down payment. Paying off as much as you can afford helps in the long term, meaning that you pay less interest on your mortgage. The second step is checking your credit score and trying to get pre-approved for a mortgage. You meet with a mortgage lender who will look at your credit score, earnings to debt ratio, and assets. The lender will use this information to determine what you can afford. Then you can find a real estate agent and shop for a home.
When you find a home, make an offer on the home and have it inspected to see if any repairs are necessary. Also, your lender will want the home appraised to see if it is a good value. The last step is closing day, when you will get your keys. You must pay the down payment, closing costs, and fees associated with processing the loan. Closing costs can range from 2 to 7%. Once everything is set, you can move in!
3. Pros of Renting a Home
Renting a house may allow you to live in areas that you may never be able to afford a home in and have lower upfront costs in the short term compared to buying a house. The landlord is responsible for maintenance costs which can also be less to worry about.
Renting also gives people flexibility. Renting is a great chance to get a taste of an area before committing long term to buying a home. The flexibility also gives the chance to move away from problem neighbors or closer to a potential job.
4. Cons of Renting a Home
Renting a home can be unpredictable. Rates can change unexpectedly. Your landlord can also choose not to renew your lease for various reasons which means you may have to move in the future. Along with being unstable, renting does not build any sort of equity value. Once you move out, the most you will get back is your deposit that you originally paid to move in unless you owe or the property is damaged. There are also no tax benefits to renting.
5. Pros of Buying a Home
You do not have to consult a landlord for permission to do things such as getting a pet, having certain items in your home, or doing remodeling. Housing is also a more stable option and much harder to get kicked out of, other than for non-payment. Fixed-rate mortgages also assure that you don’t have to worry about rises in rent price.
Along with stability, mortgage interest may be able to be deducted at tax time. Some individuals can itemize their taxes and write off mortgage interest. Not everyone may be eligible, but if you are that is an excellent plus to owning a home. Buying a house can also be a greater value. You can build equity. This means that if your home goes up in value, you can sell it for the higher value.
6. Cons of Buying a House
Buying a house costs significantly more money in the short term and homeowners are responsible for their own maintenance. There are also other expenses to consider other than just your mortgage. Homeowners must also pay closing costs when they first buy a home which are usually about 3% of the purchase price of a home.
You also must pay private mortgage insurance, interest on your mortgage, and homeowner’s insurance. Insurance can be anywhere from $500 to $2,000 dollars a year. There are also property taxes to consider.
Selling a house may also prove to be a loss of money because the value of homes changes over time. If the value goes down and the owner decides to sell, then the owner will be selling the home for less than they originally bought the home for.
Which is Better?
In the end, renting or buying is up to you. Factors such as how long you want to stay, if you are willing to make a long-term investment, and if you are financially stable are all factors that help decide what you should do. Buying a house is better for people who want permanent housing, aren’t planning to move around, and are financially prepared for the increased short-term costs as well as future costs.
Renting is better for those who would prefer flexibility and aren’t financially ready for a big purchase. If you prefer to move around or aren’t sure about permanently rooting yourself in one area, renting is for you.
If you must move, whichever option you choose, you must factor in moving costs if you can’t move yourself. Apartment moving companies cost $25-$50 dollars per hour per mover. Full service moving can be $2,300 or more. Cross country moving can be $2,200 to $5,700. Always keep your budget in mind.
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