When deciding what’s next for your living situation, one of the biggest questions has always been: Should I rent or buy? There are many factors guiding this important choice, such as finances, life goals, credit, interest rates, mortgage approvals, space considerations, and more.
Taking the next step toward owning a home might be more attainable than you think. Record-low interest rates, additional tax deductions and rebates, and first-time homebuyer incentives and loans, have all made home ownership more achievable.
For a temporary, short-term situation, renting boasts less up-front costs and recurring fees, maintenance-free living, easy relocation, among other personal and professional perks.
Let’s examine the pros and cons of homeownership and renting, to help you make the most optimal decision.
When Buying Is Best
Purchasing a home grants equity and tax benefits, and increased credit ratings. While initial mortgage payments are posted toward interest, current rates can propel your principal earnings at a higher-than-average pace.
Increasing rental payments and fees are another reason to consider buying. According to the National Association of Realtors, citing the Government National Mortgage Association (Ginnie Mae): “After 6 years, the homeowner's payment is lower than the renter's monthly payment. With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years.”
For many consumers, these incentives can be the difference between renting and owning. It’s also best to work with a reputable mortgage lender for guidance on Federal Housing Administration (FHA)- and U.S. Department of Agriculture (USDA)-backed financing, and U.S. Department of Veterans Affairs (VA) loans for U.S. military personnel.
Property taxes and accrued mortgage interest can be filed as annual income tax deductions. Extra money can be saved for home improvement projects, or to get ahead on upcoming mortgage payments.
Owning a home is the right decision if you plan to settle in a specific geographical area or neighborhood. As your family grows, it provides longevity, stability, and a sense of community.
Having an outdoor space is another benefit. This has become even more important due to novel coronavirus (COVID-19) pandemic limitations.
Personalizations and upgrades such as painting, flooring, fixtures, and other cosmetic improvements, are typically restricted when renting.
When to Reconsider Buying a Home
Purchasing a home might not be right for frequent travelers looking for short-term, temporary situations.
Tenants can also rely on their building superintendent, property manager, or landlord to assist with repairs and other maintenance issues.
Renting is also more attractive for those focusing on experiences and alternative financial investments.
Here’s a helpful breakdown of several advantages and disadvantages for homeownership:
- Equity & Credit Growth
- Tax Deductions & Rebates
- Sense of Community
- Stability & Privacy
- Outdoor Yard Space
- Less Expensive Than Renting Over Time
- Creative Lending Options for First-Time Homebuyers & Military Veterans
- Could Include Significant Up-Front Costs
- Homeowner Is Responsible for Maintenance & Repairs
- Extra Monthly Expenses
- Inconvenient for Short-Term Living & Easy Relocation
Benefits of Renting
Down payments, closing costs, and other up-front fees aren’t included when signing a lease. You’ll also need to budget for recurring expenses, such as mortgage payments, property taxes, and insurance.
Rental property repairs and maintenance are typically handled by a building superintendent, property manager, or landlord. In some instances, heat, hot water, or electric fees, are factored into tenants’ monthly payments.
Renting is also a more economical choice for frequent travelers, and other temporarily living situations.
As aforementioned, renting can cost more over time, due to year-over-year increases. A fixed-rate mortgage ensures stability for the loan duration.
Renting doesn't facilitate tax benefits or rebates, nor does it offer permanency and community. Limited inventory can also lead to less-than-stellar living conditions.
Improvements and upgrades, as well as additional tenants and pets are often limited by rental management companies.
A building manager or landlord could also sell or renovate the property on short notice.
Here’s a useful outline of several key advantages and disadvantages of renting:
- Suitable for Short-Term Situations
- Less Up-Front Costs
- Financial Freedom for Other Investments
- Not Responsible for Maintenance & Repairs
- Unpredictable Rent Increases
- Could Cost More Over Time
- No Tax Benefits
- Limitations & Restrictions
- Lack of Personalization
Examining Your Options
When weighing your decision, it’s best to contact Contour Mortgage for your free consultation today for guidance on pre-approvals, loan options, eligibility and credit requirements, and more.