Home ownership is a goal that many people want, and in many instances they are willing to make tremendous sacrifices to achieve that goal. When it comes to Buying or Renting A House, it seems as though buying a house is considered a much better financial decision than renting - but is that truly the case?
Buying a home is a huge commitment, and also a huge responsibility. It's not necessarily "instantly better" than renting, despite what many people think. Like anything, there are some trade offs. Actually, that's an understatement; to make that more realistic, let me emphasize with "Massive Trade offs."
5 Things To Consider Before Buying Or Renting A House
Before jumping into any long term decision (and living arrangements are about as long-term as you will find, at least in the financial sense), take some time to review all the options. Run some "what if" scenarios in your own mind, and make sure you're absolutely positive with your decision.
Here are some really helpful ideas for your consideration:
1. Mortgage Payments Cost More Than Rent Payments.
All things equal (square footage, location, etc...) you can expect your mortgage payment to cost more per month than a monthly rent bill. While you do eventually own your home after your mortgage payments are complete, are you financially able to pay more per month until that happens (usually 30 years)?
2. Renting Means A Landlord Is Responsible For Wear And Tear.
When you rent, the person or company that owns the property is responsible for fixing items as they break down. While this won't cover your own negligence, it will cover almost anything else. When the furnace goes out in the middle of winter, your landlord is responsible for fixing it. But if you bought your home, that responsibility is yours. And housing costs aren't cheap. For instance, a typical furnace costs well over $2,000, and repairing them costs several hundred dollars.
3. Mortgages Are Negotiable.
When people consider buying a home, they are often overwhelmed with the "what ifs" regarding mortgages. What if a better deal comes along later? What if the mortgage broker doesn't get you the best deal? Many people don't realize that a mortgage is nothing more than a long-term loan, and it's possible to pay off that loan with another loan. It's called "Refinancing" or "Refi" and it's very common. So if you find a better mortgage deal after you've already purchased your home, visit your financial adviser and ask how to pencil out a refinance deal that gives you better options.
4. Home Values Don't Always Go Up
It's been widely accepted that buying a home rather than renting one is a better long-term financial decision because the value of the home will increase even though your original loan amount stays the same. Translation: "Equity," or a greater value than you owe. More equity gives you more financial options, like second mortgages, better credit and even emergency lending options. But, just as many homeowners have discovered recently, prices don't always increase; in fact, they can even drop. That means you could actually owe more than your house is worth - a major liability rather than an asset.
5. Renting Doesn't Mean "Throwing Your Money Away."
It's been said that paying rent payments is like throwing your money down the drain. This couldn't be farther from the truth. True, you're never going to walk away with the title to your rented house after 30 years of payments, but remember that you are getting a value for your rental dollar: A roof over your head and protection from the elements.