The real estate market is hot right now. With low-interest rates and low inventory, you might be wondering whether it’s better to rent or buy a house. The decision of whether to rent or buy is highly personal to your circumstances. It’s essential to consider important factors such as; are your finances in order? Do you understand the responsibilities of being a homeowner? And more importantly, can you afford not to buy?
Are you ready to buy a house?
When deciding whether to buy or rent a house, here are some important considerations for you to mull over.
Do you have any debt?
There are varying levels of debt. Some of the most important debts to be free of before purchasing a home are consumer debts, such as credit card debt and student loans. Lowering your debt to income ratio is essential when getting the best interest rates and lending terms.
Do you have an emergency fund?
Ideally, you should have at least 3 – 6 months of expenses saved if you lose your job or become sick. Having an emergency fund relieves a heavy burden if you find unexpectedly without an income.
Do you have a down payment available?
A downpayment of at least 20% of your purchase price means you won’t have to pay Private Mortgage Insurance (PMI). Your lender requires PMI if your down payment is lower than 20%, as it helps protect them from losing money if you stop paying your mortgage.
How long do you plan to stay in your new home?
If you’re looking to move out of the area whenever you get the opportunity, it makes no sense to buy a home there. When purchasing a home, you should plan to stay there for at least three years. This will help you build up equity and reduce your chances of making a loss.
The Pros of Buying a House
Your monthly payment goes towards ownership.
When you pay rent, you’re helping your landlord pay their mortgage. However, when you pay your mortgage, you’re payment is going towards ownership of the home.
Home appreciation is yours.
Most homes will appreciate in value over the years. If you own your home, you can cash in on its appreciation and any added value to create.
You can renovate or decorate, however you want.
When you own your home, you can do whatever you’d like to, whether that means painting your bedroom black or installing a fun slide instead of stairs! Of course, with any renovation, it’s important to consider resale value.
The Cons of Buying a House
Homeownership includes more expenses.
There are many additional expenses of homeownership vs. renting. For example, property taxes, utility bills, flood insurance policy, HOA fees, and general upkeep if anything breaks.
There is no landlord to call if your AC suddenly stops working or you have a leaky pipe. As a homeowner, you’re responsible for the maintenance of your home, and that includes repairs.
The Pros of Renting A House
You can move with ease.
If you need to pick up at short notice and relocate for work, it’s a lot easier as a renter. You can find short term leases to accommodate your lifestyle and more or less move at a whim.
You’re not responsible for maintenance.
One of the most convenient perks of renting is that you don’t have to worry about surprise repair costs. If the refrigerator suddenly stops working, you simply call the landlord and let them know. As a renter, you’re under no obligation to fix the home if repairs arise — unless you caused them!
The Cons of Renting
Rent rates increase.
Rent rates can increase year after year, and there isn’t much that you can do about it other than to move and find a more affordable place. This can be inconvenient and stressful.
No financial incentives.
When renting, you can’t take advantage of equity or appreciation in your property value. You also can’t use any tax deductions.
Rent or Buy a House: How To Make the Best Decision
If you’re considering whether to rent or buy a house, it’s important to sit down and evaluate all of your options. If you’re in a good place financially, and your employment looks stable, it could be the perfect time to jump on the property ladder!