Most consumers, at some point in their lives, will have to face the decision of whether to look for a house that they can afford to buy, or look for a house to rent.
Both options have their fair share of pros and cons, but with all things being equal, should you rent or buy your first property?
Read on to find out what important factors you should consider before making a decision.
- Home-Buying vs Renting: The Pros and Cons
- Reasons to Rent
- Reasons to Buy
- Is it Better to Rent or Buy?
- Can You Afford the House You Want?
- Are You Ready to Own a House?
- Are you Ready for the Extra Costs of Homeownership?
- How Long Are You Planning to Stay?
- So you want to buy a house. How should you do it right?
- What should you do if you decide to rent?
- Frequently Asked Questions
Home-Buying vs Renting: The Pros and Cons
It basically means that you are capable of moving out of the property every time your lease period ends. It also means that you have no control over the decision of the landlord to end the leasing period and choose to convert a property from a residential to a commercial one or simply want to sell the property. Anyhow, there is no grain of truth to the popular statement, “renting is throwing money away”.
The most notable advantage of renting a property is that there is no need for any commitment. This means that you can move out whenever you want, and you do not have to worry about maintenance and repairs as these matters are not your responsibility but of the property owner. Renting makes it easier for you to travel or move from one place to another on a regular basis. you also do not have to pay property taxes, insurances, and homeowners’ association fees.
On the flip side, you cannot build wealth through home equity in renting a property. You also can’t do major modifications and renovations to your current residence, for the sole reason that the property is not yours. Finally, rent prices may change over time and these matters are out of your control as the lessee.
Primarily, buying a house is not for individuals that hop from one place to another. Owning a house brings pride of ownership, a sense of stability, and belonging to a community.
In a nutshell, the overall cost of owning a house is more expensive than the overall cost of renting a property.
The bright side of buying your own homes is that you can build wealth through home equity. Mortgage interests are lower than a month’s rent and you are free to do your own modification depending on what you desire.
On the other hand, it is not ideal for people that travel from time to time as they require flexibility and as the owner, you need to pay and manage all the needed expenses like property taxes, maintenance, repairs, mortgage insurance, other insurances, and fees.
Looking for the right property that suits you can’t always be an easy feat but to guide you through navigating unfamiliar waters, you can have more info here.
Reasons to Rent
The following are the possible reason why you should first rent a home:
New to the Locale
Like most people that are new to the city, renting it is the most desirable option and is the best primary step to easily discover the new city. According to real estate experts, renting is also a good option if you have no time to visit the locale and if you are able to find a home in a neighborhood that best suits your preferences.
Renting is the best option if you wish to save up for your dream house. This will get your finances straightened up and will increase your chances of making better decisions when buying your own house.
Renting a property is the best fit especially if you are living with someone that is not your spouse or partner. This is primarily because if the arrangement doesn’t work well between the both of you, it would be very easy to separate your assets without any legal or financial challenges.
Reasons to Buy
By contrast, here are some valid reasons for you to buy your own house now:
If you are looking for autonomy and freedom to do whatever you want, then owning your house is the best option for you – so long as you have the finances. When you have your own home, there will be no restrictions on home modifications that can definitely increase the value of your own property and can be sold for a higher price.
Owning a house can also work as a “forced savings” plan. Once you become a homeowner, you are ‘forced’ to save through amortization of your mortgages. It gives you more portion in your home as a portion of your monthly mortgage payment pays down the loan. You can also borrow against your home equity to pay for a major expense or refinance to have a more favorable rate.
Another major reason for owning your own home is that you seek a sense of stability. If you no longer want to hop from one place to another and just want to settle, then you need to look for the best home that jives with your preferences.
Is it Better to Rent or Buy?
The answer to the question, “Is it better to rent or buy?” really depends on the individual’s financial capacity, preferences, and priorities.
If you are still quite unsure whether you should rent or own a house, you can ask yourself the following questions to help you decide on the biggest financial and emotional decision you’ll make.
Can You Afford the House You Want?
This remains the most important question you need to ask yourself if you’re deciding whether to rent or buy a house for yourself.
You need to make sure that you have enough savings to buy your own home. As a rule of thumb, you must have at least 20% of the price of the home saved up for the downpayment of the home. In doing so, it will be easier for you to prequalify for a loan, and you no longer need to get mortgage insurance.
Are You Ready to Own a House?
Even if you can already afford to own a house, you need to make sure that your lifestyle and goals fit your decision of having your own home.
If you plan on traveling around, the best option for you is renting. It is also the best move if you are not yet ready for the maintenance works as homeownership may require your time in doing the things that unexpectedly break in your house.
Are you Ready for the Extra Costs of Homeownership?
You need to calculate your finances in order to make sure that it is adequate for the extra expenses that accompany homeownership. These extra costs of owning your home include mortgages, insurances, property taxes, maintenance fees, association fees.
If you are still not ready for the extra costs that come with owning your own home, then renting should be your option.
How Long Are You Planning to Stay?
Buying a home is only a great idea if you want to settle in a certain place for three years or more. This simply means that individuals who aren’t sure to stay in a particular area for the minimum number of years need to go for the option to just rent a space in the meantime.
You should take note that buying or renting a property is a major life decision that affects not only our financial health but our lifestyle as well, as it is influenced by many factors and has long-term consequences.
Thinking through your options would definitely buy you time to have a thorough assessment of your financial capabilities and lifestyle and not impulsively spend a large sum of money in your dream house without considering other contributing factors.
So you want to buy a house. How should you do it right?
There are many things to consider when you select a house, but the following recommendations are crucial when looking.
Carefully select your real estate agent
A reliable real estate agent will search high and low for the houses that suit your budget, preferences, and requests the best way. They will also guide you throughout the negotiation and closing process.
We recommend you talk with several agents until you make a decision. Personal chemistry is also essential when hiring a real estate agent.
Choose the house and neighborhood
It’s not a bad idea to make a list of pros and cons for the houses you like most. Even if a townhome or a condominium is more affordable than a single-family house, you need to consider the shared walls—they affect your privacy.
Don’t be afraid to look into buying a fixer-upper—a family home that requires repairs and updates. Such properties are more affordable than move-in-ready homes. Don’t forget that you need money for the repairs and remodeling.
Always think about your needs in the long run and whether a starter home or forever one will be the best choice. If you want to expand your family, we suggest you buy a home with room to grow. Don’t forget to learn as much as possible about the neighborhood you plan to move in. Look for one with amenities for your family and check out the commute during the busy hours.
Use the open houses as much as possible
During the Covid-19 pandemic, the online 3D home tours took the place of open houses. They’re actually an excellent way to check out a house and find the details you don’t pick up in pictures. However, these online tours are less efficient than an in-person visit.
When you tour a house in person, get the best out of it and use your senses. Pay attention to the noise, examine the home’s condition inside and out, and try to spot unusual smells. Always ask about the age and type of the plumbing and electrical systems and the roof.
Hire professionals for a home inspection
The home inspection is a detailed examination of the mechanical and structural system of the house. Inspectors will be able to find problems and ease out your decision-making. Here are some things to remember:
- Regular inspections don’t include testing for mold, radon, and pests. Make sure you know what the house inspection comprises.
- See that the inspector has access to the entire house, roof, and crawl spaces included.
- You should participate in the house inspection. You will understand possible problems with the house and ask questions accordingly.
You might feel pressure to spend more than planned to beat another offer. You should avoid financial stress in time so stick to your set budget. We recommend you examine properties below your price limit to have some room for bidding.
Do negotiate with the seller
If repairs are necessary, you can save some money by asking the seller to reduce the price to cover the repairs. You can also ask him to cover the repairs, to begin with, or at least cover some of the closing spendings. Remember that the lenders can limit the percentage of closing costs the seller can cover.
The local market will affect the negotiations profoundly. If there are several buyers for the house, it will be a struggle to negotiate. We recommend you ask your real estate agent to help you strategize according to the local market.
Get a good home insurance
Some lenders ask the new homeowners to get insurance before closing the deal. Home insurance covers spending for repairs and can also replace your belongings and home if damaged during an incident stated in the policy. It can also offer liability insurance when you become responsible for an accident or injury. Make sure to get home insurance that covers the spending of rebuilding in case of destroying.
What should you do if you decide to rent?
If you conclude that, for the time being, renting is better than buying, we advise you to pay attention to the following aspects.
Carefully examine the property
Take photos and submit them to the landlord before you put down the security deposit. Ask the landlord for a move-in/move-out checklist. It typically includes everything the landlord will inspect before and after you leave the rental. The list helps the landlord see if you damaged anything throughout your renting and protects you from paying for damage that you didn’t cause.
Read the lease’s terms
Read the lease or have your realtor/attorney check it out first. Examine the rules and clauses about pet policies (if need be0, maintenance and upkeep standards, when and how you pay rent, and the guidelines for breaking the lease. Read all rules about getting the security deposit back and how you can sublet the house.
Get renters insurance after moving in
Even if your property is in a highly secured neighborhood, the risk of unexpected mishaps is never null. Natural disasters, theft, break-ins, etc., are never excluded from happening. You should stay safe and get renter insurance from the moment you move in. The landlord insurance won’t cover your belongings if anything goes south. You need insurance to replace your items in case of fire, theft, or water damage. Such insurance may also cover medical expenses if the injuries take place inside your home.
Stay on top with property maintenance
Is the heater louder than usual? Does the toilet not flushing? No matter the problem, always contact the landlord the moment it happens. Typically, the landlord has to cover such repairs.
Ask the landlord about customization of the property
If you don’t like the wallpaper, color of the walls, etc., you shouldn’t make any changes until you talk about them with the landlord. If you care deeply about customizing the rental, you should discuss it with the landlord before signing the lease. Not all landlords are okay with renters painting the walls. Some landlords are open to the idea of splitting the spending for remodeling jobs. Either way, you should always get the written approval of your landlord before starting to paint the walls.
Frequently Asked Questions
Is it risky to rent a house?
Similar to any other business, renting your property comes with risks you have to be aware of. The main risk when renting your property refers to high vacancy rates, tenants that damage your property, and the risk of negative cash flow.
What is the security deposit?
The security deposit is the money you give to the landlord, seller, or lender as proof of intent to move in and care for the property. The security deposit works as a measure of security for the recipient. In case of damage or lost property, the security deposit is used to cover the spending.
As a tenant, will you get the security deposit back?
The landlord shouldn’t keep the security deposit unless you damaged the property. He has to return the security deposit once the tenancy contract expires. He should give it back in full, or whatever of it is left after maintenance.
How much will you pay for a house?
The median home listing price in the U.S. is around $226,800. The price ranges deeply from one state to another. Coastal states such as California and Massachusetts represent most of the priciest places to buy a home. We find Midwestern and Southern states such as Ohio, Iowa, and Mississippi as the most affordable states to buy a house at the other end.
Is buying a house a good investment?
You will put a lot of money into a property, and its value can decrease or rise with the economy. Unlike renting, though, buying a house can help you build wealth. It’s a wise investment to make because it’s a safe place to put your money in. Additionally, home values tend to increase over time.