July 3rd, 2018 9:42 AM by Jackie A. Graves, President
rent-versus-buy decision? Both have upsides and drawbacks.
the answer depends on multiple factors, including your finances, your long-term
plans and the real estate market in your area.
Here are five
questions to ask when deciding to rent or buy a home:
consideration in the rent vs. buy decision is often how much each will cost.
You can use Bankrate’s rent vs. buy calculator to help you crunch
you rent a home, your monthly costs are generally fixed for the term
of the lease. Your monthly rent may or may not include utilities such as
electric, gas, cable or internet. Most leases require the first month’s rent,
last month’s rent and a security deposit equal to one month’s rent in advance.
For an apartment that costs $1,000 per month, you’d typically need $3,000 up
front. Keep in mind, though, that landlords can in most places increase the
rent as much as they like when the lease ends or sell the property you’re
renting, so you may have to move a few times.
news: When you’re a tenant, your landlord is generally responsible for fixing
any issues with the property, whether it’s a leaky roof, a cranky furnace or a
much house can I afford?
a home, most mortgage lenders require a down payment between
3 percent and 20 percent of the home’s price. Some loans may have a lower
threshold, but down payments below 20 percent will mean paying for private mortgage insurance,
or PMI, which is an additional monthly expense. You’ll also pay closing costs,
which average 2 percent to 4 percent of the home’s price.
A mortgage calculator can give you a rough
estimate of your monthly payments, including your interest and principal
outlays and other expenses such as property taxes, homeowners insurance and, in
some cases, homeowners association dues.
A housing affordability calculator can help you
determine how much house you can afford. But our financial responsibility
doesn’t end with your monthly mortgage payment. You’ll also need to pay for
utilities, maintenance and repairs, whether it’s a few bucks to fix a leaky
faucet or thousands to replace a roof.
you buy or rent? Here’s what to consider
to buy a home
Buying a home
can be a great investment. If home prices in your area have been rising,
buying now can help you stay in a neighborhood that you might otherwise be
priced out of in a few years. And even if you don’t end up staying long term, a
sharp rise in local property values could mean a sizable profit when you sell.
indications that buying may be right for you:
to rent a home
your own home can offer a sense of security, homeownership has its drawbacks —
remember the roof replacement? Getting out of a lease is also
much less of an ordeal than selling a house, so if you’re not sure where you’ll
be next year, renting can save you some costly headaches.
that renting may be right for you:
flexibility? Then rent
You are more
mobile when you rent because you can move out at the end of the lease. Buying a
home entails a lot of upfront costs, from the down payment to inspections to
loan fees. Renting carries fewer upfront costs.
is great when you build it
On the other
hand, renting has a major drawback: You don’t build equity.
What is equity?
When the home’s value
rises while the mortgage debt falls as you repay it, you’re “building equity.”
Home’s value – Mortgage debt = Equity
shows that homeowership is a pretty good investment,” says Malcolm
Hollensteiner, Mid-Atlantic director of mortgage at United Bank in Glen Burnie,
home values fall or you run into trouble repaying your mortgage, you stand to
lose money. Your finances and credit could take serious hits if you fail to
repay your loan.
home appreciation with rent
It’s a good
idea to balance home-value appreciation with the upfront costs of buying.
Richard Green, a professor at the University of Southern California, Los
Angeles, offers this rule of thumb:
values have to go up about 3 percent a year over rent for you to break even,
then, depending on your living in a place for five years, buying is a better
bet than renting. If you have to get 5 to 6 percent appreciation every single
year, then you are better off renting from a purely financial standpoint.”
If you have
young children, owning a home lets you lock in your housing costs so you can
give the children the stability of staying in the same school district for an
the tax advantage if you can
factor to consider is whether you will be able to deduct the mortgage interest
expense. Tax laws allow those who itemize their taxes to write off their
mortgage interest payment, which means you pay less for your mortgage. But not
everyone is eligible to itemize deductions, and changes to the tax laws in 2018
will mean more people won’t be able to deduct mortgage interest and property
make it your primary investment
If you are
focused on the investment potential of owning your home rather than the softer
aspects of security and stability, then you might be better off renting.
that homeownership doesn’t carry a lot of risk with it is wrong,” says Green,
the USC professor. “If you are in a mutual fund, with a long-term perspective,
it is probably going to grow faster than real estate values. Housing can be
more volatile than you think (depending on location).”
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