As colossal life debates go, the rent-versus-buy one is a biggie. People guard the turf on either side of this divide with fierce conviction. The math is different in different local markets, as is the personal situation of every one wrestling with this question. There is no clear cut answer.
Which explains why confusion reigns.
So, should you keep renting or should you buy a home?
Ultimately, the rent-versus-buy conundrum amounts to one of those multifaceted subjects whose consideration extends beyond hard numbers and facts and into the highly charged realm of the emotional and psychological. In other words, it’s not just an individual’s financial situation that will dictate on which side of the divide they should fall, but their personal situation, as well.
Given that complicated backdrop, a few key considerations rise to the top of this decision making process. Every one of them plays host to powerful arguments that could support either side.
Here are some of them:
The Down Payment
The down payment a home buyer puts on their purchase represents a massive upfront expense. How much you put down determines the amount of your mortgage. And while it’s possible to buy a house with a down payment as low as 3.5 percent of the house’s purchase price (that’s the minimum down payment requirement for an FHA loan), the requirement to engage with private mortgage insurance that’s associated with such an arrangement recommend you pony up at least 20 percent.
If you’re renting, on the other hand, your upfront fees — typically first and last months’ rent — are considerably less.
Once you own a home, the hits keep coming, your regular mortgage payment being the most significant.
Home owners argue loudly here that paying a mortgage amounts to a forced savings vehicle, and one that can take place outside of the long arm of governmental taxation. As long as the market is holding or rising, home owners are building equity and increasing their net worth with every bite out of their mortgage. Ultimately and ideally, your house represents a valuable asset that can be cashed in upon in the future.
But on the other side of the coin, detractors point to real estate data that equates the annual increase in real estate value to inflation, meaning it’s not much of a savings instrument, after all. And lots of studies indicate that a renter with decent savings discipline could actually end up wealthier than if they were a homeowner.
More than that, sometimes the cost of carrying your own home (principal, interest payments and property taxes) amounts to a wash when compared to the cost of renting. And there’s no question that renting is the sweeter option in a housing market in which sales have slowed but house prices have continued to creep upwards.
For those not satisfied with such seesaw calculations, consider the rent-versus-buy report that online residential real estate site Trulia conducts every six months. In its most recent report, the results — reflecting consideration of the 100 largest metro areas in the US, and assuming a 30-year fixed rate of 4.5 percent and conservative home price appreciation — suggest that owning a home is 38% cheaper than renting.
The purchase of a house comes with a multitude of costs. There are legal fees, commission fees, moving costs, utility adjustments, closing costs and land-transfer taxes. You might need to purchase a property survey or title insurance. And the list goes on. Some experts suggest that these transaction expenses, taken together, combine to a figure that hovers in the neighborhood of 10 percent of the house’s purchase price.
Then once you own the thing, the costs persist. Think: property taxes, maintenance costs, upkeep obligations, repair bills. When you rent a home, you’re pretty much just responsible for paying your rent. Someone else — the owner — has to cover its ongoing expenses. When something breaks in a house you own, the only one who’s going to fix it, and pay for the repair, is you.
Generally speaking, the older the home, the higher the maintenance costs are going to be. One rule of thumb suggests that maintenance costs will run between three and five percent of the home’s value per year. So a house worth $250,000 would cost about $10,000 a year, or $833 a month, to maintain.
Renting is all about mobility and flexibility. If you’re a person who likes a frequent change of scene, renting frees you up to move around. And if you’ve got a job that requires occasional relocating, renting is likely the better bet.
A home owner is pretty tied down by his living arrangement. Buying a house is like having a dog: by making the commitment to ownership, you’re obliged to maintain its care.
While money is undeniably among the biggest considerations in deciding whether to rent or buy, it shouldn’t be the only one. Indeed, all money talk aside, there’s no question of the psychological benefits of home ownership. Home owners get the pleasure of putting down roots and, what’s more, they enjoy complete control of their environment while doing so. And it’s hard to argue that it simply feels better to own the place in which you’re living than to have someone else — be it a landlord or the bank — own it.
Mind you, there’s also much to be said for the psychological boost a person gets from knowing they’re not responsible for repairing their busted refrigerator or re-shingling their leaking roof. Every home owner occasionally yearns for such a worry-free existence.
People say that when you grow up, you buy a home. Full stop. But just who are these “people”? And do they have your best interest at heart or are they just repeating what other “people” told them?
At the end of the day, there will never be a definitive answer to the rent-versus-buy dilemma.. The decision is complicated and personal. It involves much more than just running the numbers. There are significant emotional rewards and challenges associated with each alternative.
Whether you rent or own is, ultimately and at last, a matter of lifestyle, time of life, financial means and personal preference.
Do you rent or buy? Which one do you think is better? Let us know in the comments.
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