Buying a home is a huge commitment no matter what size house you buy. There’s mortgage payments, property taxes, homeowners insurance and lots of maintenance. But buying can give you a place to plant your family tree and provide that sense of roots that renting may not.
There are many pros to owning a home, such as the ability to own the home outright after the banknote is paid off. Owning a home provides stability, sense of community and the pride of owning your own place.
💡 Fun Facts…
| 1) The median home price in 1950 was $8,000 and is up to $425,000 in 2022 |
| 2) In 2022, 5% of homeowners moved, while 16% of those that rented moved |
| 3) The average cost of a local move is around $1,000, while its almost $5000 for long-distance |
Costs of Owning
Owning is typically more expensive than renting with mortgage interest, which can make up nearly all of your monthly payment in the early years of a long-term mortgage. For instance, if you take out a 30-year loan for $100,000 at 4% your monthly payment will be around $477. The problem is, over $333 of that is interest and only $144 goes towards the principal. It will take about 13 years, or longer, before you see that level off to the point where more of your payment is actually going towards your principal loan, and not just interest. It seems a bit like sticker shock, when nearly $72,000 of your initial loan payments are just being applied towards interest – although you may be able to deduct it from you income taxes. Your accountant can best determine that for you.
Of course, the more you can put down on a home, the less you’ll have to borrow, and your payments will be lower. However, just like a mortgage payment, owning a home comes with many recurring monthly costs and responsibilities. While home ownership rates have remained fairly steady since the 1950’s, the rental vacancy rate has dropped to 7% in recent years as fluctuating housing markets have made it more economically sound to rent.
It’s important to recognize that the recent Covid pandemic has also driven the average home prices up for a few reasons. At the start of the pandemic, interest rates were low, which made borrowing money, and therefore, purchasing a home much more appealing to those looking for homes. In turn, there was a large spike in the demand for homes and given that there is a limited supply in a short time period, demand drove prices up as much. Another reason for the recent spike in home demand is due to the changing needs of humans. With a rise in the work-from-home culture, the desire to have larger indoor and outdoor space, and a decreased desire to be in a densely populated city, people are more-willing to overpay for a home out of necessity. It is reported that the median home prices is up as much as 40% in the last couple of years.
Rental Freedom
Renting gives you options, if you don’t like the area you’re in or your neighbors are just intolerable, you can just find another rental, pack up and move. Renting can also provide stability by knowing exactly how much you’re going to spend on housing each month. Your monthly rental-related expenses, such as renter’s insurance, are way more predictable. Renting also means that responsibilities like maintaining the physical structure is not your responsibility. Unless you rent a house where you’ve worked out an agreement with the landlord to maintain the property in exchange for fair value in discounted rent, you’re off the hook.
The Risks
Buying a home is a risk just like any other investment, nobody can accurately predict the future of the housing market. That is precisely why renting a home versus buying has become a better option for many people who either can’t afford a home or aren’t willing to take the risk. Time can also play a large part in deciding whether to rent or to buy. A demanding career may not leave you the time or the energy to own a home. The majority of American homeowners are tasked with maintaining their homes themselves. Which is just fine for some folks, but it can be a lot of work. If your job doesn’t leave you much free time, then renting may be a better option for you.The flip side is, when you rent you run the risk of your lease not being renewed. Moving often can be both costly and exhausting. Unless you have a long-term lease agreement, you live in the uncertainty of whether you will be able to stay another year or get packing. While it’s nice to know if something breaks or needs to be replaced, your landlord is responsible; on the other hand, your landlord is just that and owns the property you are more than likely only occupying temporarily.
The Balance
While there are pros and cons to both buying and renting, in the end it all boils down to what works best for you, your budget and the time you have available. The best thing you can do is be honest with yourself about both your finances and your needs. If you’re uncertain which is which and you find a rental you really love, you may be able to negotiate a rent with option to buy agreement. That way you can give it a test run before you commit long-term.
OPINION
Renting is certainly a great, affordable and convenient option for housing, but in the long run, buying real estate is a great investment. While it is no small endeavor, with some long term planning, you can save up for a house. You’ll need enough money for the down payment and a strong credit score to obtain a mortgage. You’ll also need to make sure you can budget for your monthly mortgage payment, which may be more than you pay for rent. What’s great about owning a house is that it’s and investment that you can use and enjoy, knowing that real estate generally increases over time.
