The “American dream” sure has changed over the years. Buying a home used to be an almost guaranteed right-of-passage into adulthood, but these days people are delaying homeownership for a number of reasons including the rising home prices that have made renting more attractive.
When considering whether you should rent a property or buy a house, there are a lot of things you must take into account.
Pros of Renting
– Renting offers more flexibility and freedom. Most places have a set-term lease between 6 and 18 months, but others have month-to-month contracts. When you are nearing the end of your lease term it is your decision whether or not to extend your contract or move to a new location. This can be helpful if you are going to be changing careers, moving, or if you plan to buy a house at some point in the future.
– You are not required to perform any property maintenance or repairs. Generally speaking, when you are renting and something breaks, and you are not at fault, the cost of repairs or replacement is your landlord’s responsibility.
– Rental companies may check your credit score before renting to you, but they are more flexible about renting to someone with little or bad credit history than most banks would be during the home buying process. If you have little credit or bad credit, having a history of paying your rent on time can help.
Cons of Renting
– Because you don’t own the property, your monthly rental rate can be increased at the renewal of your leasing contract. Another thing you might have to worry about is the sale of the property. If the property owner decides to sell the property, you may have little warning to find a new residence.
– When you are renting you aren’t building equity. Instead your monthly rent goes straight down the drain and into your landlord’s hands. Owning a home means you have an investment to sell, or rent out yourself, if you ever decide to move.
– You can’t customize your living space. The majority of apartment and rental house leases state that you are not allowed to paint or perform upgrades to the property without permission. Some even go so far as to ban you from hanging any decorative items on the walls!
Pros of Buying a Home
– Unlike in renting, your home is an investment that you build equity in over time. Most houses gain value over time and even if yours doesn’t, you would still gain equity by paying down your mortgage. If you decide to move, you have the option of renting it out to generate income or sell it, hopefully for more than what you owe and sometimes for more than what you paid.
– There are also tax advantages to owning a home. Mortgage interest, property taxes, and energy saving upgrades may be deductible. Ask your accountant or tax preparer for details.
– Owning a home provides stability. Your monthly payments cannot go up without warning, which can really help you to budget your money wisely. Also, because most homeowners live in their homes for at least a few years, it can be easier to get to know your neighbors and be involved in your neighborhood.
– You can decorate as you please when you own your home. No matter if you want to take out walls, add on to your home, paint, or upgrade your fixtures, you are free to perform these tasks as you please when you own your home.
Cons of Buying a Home
– One of the biggest disadvantages of owning a home is that you have to pay for all of your own maintenance and repairs. If something breaks, you are responsible for getting it repaired, or hiring someone to repair it for you.
– Stability can be both a pro, as mentioned above, and a con to owning a home. Because your home is not a liquid asset, like cash, it can be difficult to sell it or turn it over quickly if you need the cash or are in a hurry to re-locate. You are also locked into paying that mortgage loan for 15-30 years. That is a long time.
– Usually buying a home requires that you have some sort of down payment. Most people end up using a large portion of their savings as a down payment and to pay for closing costs. If this is the case, cash on hand for anything else may be limited.
Weighing the pros and cons of both choices is a good way to decide which option, renting or buying, is right for your situation. Just because your peers are buying homes and “settling down” doesn’t mean that is what is right for you. Be sure to consider not just the emotional aspects of renting or buying, but also the financial ramifications of both options.
By Kayla Sloan, Contributor