Homeownership is often seen as the embodiment of the American Dream — and renting as merely a step along that journey. But the dream can differ for everyone. While owning a home can be an important investment for some, others may prefer the flexibility and freedom that comes with renting. If you’re struggling to decide whether to buy or rent your next home, here are some financial and lifestyle considerations to keep in mind.
Upfront Costs
When you’re buying a house, your immediate financial outlay is likely to be significant. A competitive down payment for a home is typically at least 20% of the purchase price, but you’ll also have to factor in closing costs. And if you’re getting a fixer-upper, repair expenditures can be substantial.
On the other hand, renters also have upfront expenses to consider, including an initial deposit when they first move in. Plus, many landlords also require the first and last month’s rent to be paid in advance. This means that while buying a house usually costs more upfront, if you’re renting you may still need a pretty big chunk of change before moving day. But the initial moving costs aren’t the only factor to consider when you’re trying to decide between buying and renting.
Long-term Finances
Over time, the financial impact of renting vs. buying a home are very different. High mortgage rates can add up to many tens of thousands in interest payments over years. And in addition to their mortgage payment, homeowners can incur many monthly expenses that renters won’t have to deal with. For instance, homeowners insurance, property taxes, HOA fees depending on your area and repair costs all fall on the homeowner.
But the long-term positive impact of homeownership could make the increased monthly costs worth it for you. Homeowners can build valuable home equity and deduct mortgage interest and property taxes from their yearly tax bill. Plus, the opportunity to refinance a mortgage gives you control over your monthly expenses in a way that a renter won’t have. On the other hand, while renters can’t build equity and can be subject to an increased monthly payment as rents rise, repair costs and property taxes won’t fall into your lap — and renters insurance is significantly less expensive than homeowners insurance.
Think About Your Lifestyle
Ultimately, whether you buy or rent a home depends on your goals and priorities. Owning a home gives you the ability to personalize your living space and make improvements as you see fit. It also allows you to set down roots in a community — which is great if you’ve found where you’d like to stay in the long term.
But if you’re still looking for a community that feels like home, or you’re a nomad at heart, you may prefer the flexibility of renting. Moreover, the property maintenance involved with homeownership isn’t just a financial concern — to get repairs done, a homeowner may need to coordinate with contractors and code inspectors, while a renter can simply text the building superintendent or the property owner.
To Buy, or Not to Buy?
It’s a big question — and the answer takes careful consideration. When you’re trying to decide whether to rent or buy a home, it’s important to evaluate your finances, but also your long-term goals and your lifestyle. What type of community do you want to live in, and will you be more likely to find it as a renter or homeowner? And will the housing market be in your favor when it’s time to buy?
Before making such a big decision, it’s helpful to get advice from a Financial Professional — they can assist with examining these factors and help you decide whether renting or buying is right for you.
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