Rent vs Buy: What is Your Best Option?

Buying Your Home

Owning your home outright can be alluring. The homeownership rate in America from the middle of the 20th century hovers between 62 percent and 70 percent. There are several things to note when considering whether to purchase your home instead of renting it.

Costs Involved in Buying a Home

It goes without saying that any acquisition of property comes with a set off accompanying costs. Some of them are borne upfront while others recur once you make the purchase.

1. Upfront Costs

There are costs you will incur before buying the property, and they include:

• Home Insurance for the First Year

When getting a mortgage facility from a lender to purchase a home, you need to prove you have home insurance on the property. The premium for the first year is typically paid up front in full either when you are closing the purchase or when you acquire the policy.

• Appraisal

When choosing to buy property, you want to be sure that the selling price accurately reflects value. Getting the home appraised in necessary for this purpose.

• Taxes

Tax charged on the property is paid in advance. Therefore, the seller has usually already incurred this cost and requires compensation for the amount paid between the date you close on the purchase and when the current tax period ends.

• Inspection

Any property you desire to purchase needs an inspection to accurately ascertain the condition it is in before placing or confirming an offer.

• Miscellaneous Costs When Closing

There are other charges you incur that are associated with closing the transaction. These include credit report fee, title insurance fees, loan origination fees, etc.

• Down Payment

Once you settle on the purchase, you are required to pay an agreed percentage of the total property cost by the time you’re closing the transaction. The amount can vary depending on several factors. If it is an FHA loan , it will be at a rate of 3.5 percent. Other loan facilities can run as high as 20 percent.

2. One-Off Charges

These are costs that you incur once and for all during the transaction. They include:

• Moping cots when relocating your items into the new house.
• Renovation costs you incur as you opt to improve physical aspects of the property.
• Repair costs when rectifying damaged or non-functioning items on the property.

3. Recurring Costs

These are costs you repeatedly incur as the owner of your property. The differences in these recurring costs have typically played a part in swaying the rent vs buy decision for various people. They include:

• Utilities

Electricity, water, gas, recycling, etc. are some of the charges that you need to cover monthly as a property owner.

• Home Insurance

The premium on your insurance is paid monthly, and the actual amount can vary every year due to factors like a change in the appraised value of your home.

• Property Taxes

The tax charged on your property by your city or county is also paid monthly.

• Maintenance Costs

As a homeowner, you will need to continually facilitate repairs, replacement of damaged or worn out items and keep the house up to code on a regular basis.

Pros of Buying a Home

• No one will be knocking at your door at the end of every month asking for rent. You get peace of mind.
• You can opt to rent it out to earn more money in the future.
• As a homeowner, you build equity in time which can come in handy when seeking a future loan from a lender.
• You also qualify for some tax benefits, e.g., deductions and homestead exemption.

Cons of Buying a Home

• Significant costs before you purchase the property.
• The home can lose value over time in case the housing market underperforms.
• Recurring maintenance and repair costs can cause a significant dent in your finances in case you lose your job in the future and can’t afford them.

Costs Involved When Renting a Home

Renting a home comes with a lesser number of costs and the rent side of the rent vs buy debate has always been keen to espouse this point. Nonetheless, they are charges that you must still incur and they include:

• Deposits

When moving into a rental house, you pay a security deposit upfront. It is usually an amount equal to a month’s rents. Other deposits can apply, e.g., pet deposits. These can be non-refundable, unlike the security deposit.

• Moving Costs

You will need to pay movers and any other costs associated with relocating your belongings to the new rental house.

• Rent

A monthly charge for occupying the property is due every four weeks.

• Utilities

Some landlords will require you to foot the utility costs for the rental property you occupy. Others will only charge you for rent and cover the utilities.

• Pet Rent

Some landlords will forego charging a pet deposit upfront and instead add a pet rent to the amount due every month.

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Pros of Renting a House

• You aren’t responsible for the cost of maintaining the house or carrying out repairs.
• There are no high upfront costs as you only pay rent and a one-time deposit.
• You don’t incur a loss if the property values go down. You are shielded from the ups and downs of the real estate market.

Cons of Renting a House

• You don’t gain from tax benefits dedicated to homeowners.
• While renting you always face the threat of eviction despite laws that govern it. This lack of security is one of the sticking points that drive the rent vs buy debate.
• When you opt to rent, you don’t build any equity over the years in the property you occupy. You lose out on the chance to increase your wealth despite being in the same house for many years.

Conclusion

When considering property many people experience the rent vs buy debate. To make a prudent choice you need to look at the costs involved with each option and the pros and cons. Different circumstances call for different options, and the right choice depends on what will work for your needs.