Buying a home vs renting

Posted: 02/09/2007--25/11/2008 || Rate this Article: 3 || Views|| Sign In || Register ||Hello Guest

Housing is perhaps the largest expense anyone has. The decision to rent a house or an apartment versus buying a home has long-range financial repercussions. Let's examine the factors to consider when making this decision.

How long do you plan to stay in the area where you live? If you will only be there a short time, such as less than five years, you would probably be better off renting than buying. Closing costs and real estate commissions will erode any profit you might make on the sale of your house. And if you haven't been in the house long enough for it to appreciate significantly in value, you might even lose money on the sale.

How much money do you have to put down on a house? If your down payment will not be at least 20% of the house's value, you will have to pay private mortgage insurance (PMI) every month. You will have to continue to pay PMI until your loan balance is below 80% of the house's value. PMI can add a considerable amount to the cost of the loan over several years.

How much money will you have left in savings after the down payment? If making your down payment depletes your savings so much that you do not have enough money to handle household emergencies, you might be better off renting until you have built up your savings. Otherwise you will end up using credit cards or other loans to finance emergency repairs. Then you will pay much more than you should because of the interest on the money you have borrowed. The increased debt will also leave you more vulnerable to financial problems.

Do you have a pet? If you have pets, you might be better off buying a house. Landlords today are increasingly reluctant to allow pets. Especially if the pet is a dog of a large and reputedly aggressive breed. Pet deposits can cost hundreds of dollars, even when the landlord allows pets. When you own a home, you can have any kind of pet you wish, as long as it doesn't violate any local regulations. And if your pet is large and energetic, you can fence in your back yard to give it plenty of room to play.

Do you foresee wanting to remodel your home? If you want to be able to alter your home any way you wish, you would be better off buying a house. Most landlords do not allow a tenant to paint their walls any color they want, or change the landscaping of the yard. And forget about adding on a room or remodeling the kitchen. If the freedom to change your home appeals to you, buy a house.

Are you handy? Are you willing and able to fix things around the house? If not, do you have enough money to pay a competent repairman to do these tasks? If you rent, maintenance is your landlord's responsibility. However, not all landlords make repairs quickly or competently. The tradeoff for not having to do your own repairs is to depend upon your landlord to do them the way you would like them done.

Are housing values in your area rising? Do you think of your house as an investment as well as a home, or do you just need a place to live? When you rent, the money you spend each month is gone forever. It does not build equity in your dwelling as a mortgage payment does. Most houses in American have appreciated in value over the years. When you sell the house, you may receive much more than you paid for it. At the least, you will be repaid for the equity you have built. But in some cities, housing values have fallen over time. You might end up owing more for the house than you could ever sell it for. In this case, you would be better off renting since the only financial liability you incur is your monthly rent.

Do you want the ability to control your monthly housing costs? Then you should buy a house. With a standard mortgage, you know what your payments will be for the life of the loan. Unless you live in a rent-controlled area, a landlord can raise your rent every year. If you are a month-to-month tenant, your rent could be raised every month. And if you own the house, eventually you will pay off your mortgage and own your home outright. The freedom from housing payments can insure your financial stability, especially after your retire and are living on a fixed income. When you rent, you must make payments every month for the rest of your life.

Whether you decide to rent or buy, consider your lifestyle, current finances, and financial goals. Careful reflection on these issues will lead you to make the best decision for you and for your family.