April 30, 2019
Time and time again we see first time home buyers who are surprised to see what they qualify for when it comes to getting a home loan, for better or for worse, but usually for better. A lot of people out there don’t even realize that they qualify for a home loan and are looking to rent. But why rent if you can buy? Of course there are advantages to both so let’s compare apples and oranges.
Home ownership:
One of the most important aspects to being a homeowner and perhaps THE most beneficial, is the financial investment. Building equity as you pay off your loan as well as your home appreciating can create a wonderful financial nest egg down the road. Not to mention how paying your mortgage on time each month really helps build your credit. How’s that for a sense of security?
Another thing that people like about homeownership is the independence. You don’t have to worry about a landlord telling you what you can and can’t do. For example, people who own large dogs have a very hard time finding rentals in our area. So many property management companies and landlords have strict rules about pets. Additionally, if you’re renting a place that has carpet and you decide you want something else, you can’t just rip it up and replace it with what you want at your own free will.
Stability. People who own their residence tend to stick around in one place longer than people who rent which creates stability and an overall sense of security. Imagine not having to change your address on all of your accounts all the time, to not have to switch school zones if kids are a factor, etc. PLUS, Moving is expensive! Even if it’s just across town.
Tax benefits. Did you know that if you do any upgrades to your home such as paint or replace even a light fixture, you can write off the cost on your property taxes? Examples such as this create appeal to owning a home.
To snowball off of the above statement, another benefit to owning a home is that you can upgrade or change things to your liking at anytime... which also helps your home appreciate.
We couldn’t, in good conscious, give you the highlights without disclosing the lowlights. While the financial investment of owning a home is surely the greatest pro on this list, the financial risk is deemed by most as the greatest con. While it is rare for this to happen, it has been a common problem for our friends and clients who purchased their home around 2006 - 2008 when the market was at its peak. These buyers were paying skyrocket prices (WITH balloon payments) for homes and ending up upside down when the market crashed. Even now in 2019, we see sellers who bought their homes during the height of the market who are selling now, after paying 10+ years on their home loans, just breaking even. We’ve even seen sellers who have to bring money to closing to pay off their loan because they still owed more on the house than what it was worth. Again, while this instance is rare and the FED and banking industry have instilled laws with home loans now that prevent this same thing from happening to home buyers again, we still see many buyers who are weary of this happening again. Talk to your Realtor and Loan officer or even a financial advisor for more info on this if you have doubts.
Now let’s look at renting:
There are definitely some advantages to renting. If something breaks, you call your landlord or property manager and they send someone out to fix it, usually at their expense. For example, your HVAC goes out and you need a new one. You’re looking at a $5,000 (average) expense. If you owned the home, would you be able to afford that repair?
Another factor for renting is this: How long are you planning on staying in your area? If you move to a city or town for a temp job or say, for college, and don’t plan on being there for more than a couple of years, renting could be easier for you.
Renting has fewer costs up front and less work to get you approved. It also takes less time - both, time to find a place that works and loan processing time for buying vs submitting an application to rent. Additional to fewer costs up front, there are fewer costs down the road as well. You don’t have to worry about putting money aside to pay property taxes at the end of the year and expenses such as homeowners insurance.
How’s your credit? What’s your financial situation? If you have a heaping mound of student loans hindering you and don’t have a heaping mound of money in savings, you may not be able to get a loan that is going to work for you. You could end up with a soaring interest rate or not get approved at all. If this is the case, it’s probably best to rent for a little bit longer until you pay off some of that debt and get some more money in savings.
Finally, renting con list: Your landlord can raise your rent at anytime or decide to sell and break your lease. You’re not building any equity. You’re not getting any kind of tax benefits.
All in all, there are a lot of factors that could determine what’s best for you at any given time. If you still feel unsure, contact a local Realtor or local home loan originator to get down to the nitty gritty and see what your options are. In this day and age there are so many home loan options, you might be able to find one that works for you.
As always, we’re happy to help. Feel free to reach out or stay tuned for more Real Estate info!
