As a renter, you may be tired of staring at ecru walls, dreaming of the pastels you could paint them if only you owned a home. Meanwhile, your homeowner neighbor is constantly fretting about home repairs and wishing they were a worry-free renter.
If you’re aching for change, you may be wondering, “Should I rent or buy?” According to David Donhoff, Principal Advisor with Leverage Planners Wealth Management, “It’s a two-part question…emotional and financial. Renting and owning both have offsetting trade-offs.” Let’s examine what you might consider when it comes to renting vs. owning a home.
Reasons to Buy
It may come with a greater level of responsibility, but owning a home comes with its upsides:
- Owning a home may help you build wealth. As Donhoff says, “Your wealth expands as inflation forces real estate prices to rise.” And while the potential returns on home ownership may pale in comparison to the long-term returns from the stock market, it’s better than renting’s zero returns.
- Interest rates are still in record-low territory, historically speaking.
- It’s all yours, so paint it turquoise if you’ like — when you own your home, you can modify it as you please, subject to any HOA requirements.
Reasons to Rent
However, according to the Pew Research Center, renting is winning over owning these days, for good reasons:
- Your hard-earned cash won’t be spent on down payments, taxes, insurance, and maintenance.
- There’s less responsibility. When the roof leaks or a pipe bursts, it’s likely your landlord’s headache rather than your own.
- You can relocate any time.
The Negatives of Buying
Of course, the permanence of owning a home often comes with more headache than renting:
- Homes are expensive commitments. Even if you earn enough for taxes, mortgage payments, and homeowners insurance, you’ll still be responsible to cover necessary home repairs.
- Down payments — many loan programs require at least 20% of the purchase price — as a down payment, along with closing expenses, which can run 2%-5% of the home’s price. First-time homeowners may qualify for an FHA loan with a lower down payment or other down payment assistance options, but that’s still challenging for some buyers.
- If you’re unhappy with the house or neighborhood, you might be stuck for a while based on the market. It’s hard to walk away from a mortgage if you can’t sell.
The Downsides of Renting
Before you eschew the idea of ever buying a home, though, remember that renting has its negatives as well:
- There’s no asset equity. Once the month passes, you have nothing to show for what you’ve paid your landlord.
- The home isn’t yours — no major changes allowed (typically).
- It may be more expensive in the long run. Plug your numbers into a renting vs. owning a home calculator to see which makes more sense.
You now have tools to answer the question, “Should I rent or buy a home?” Ultimately, though, it’s up to you. Donhoff recommends asking yourself if you emotionally prefer the benefits of owning or renting. And no matter what decision you make, there will always be times when the grass looks a bit greener on the other side.
Please contact us at Finance of America Mortgage to learn more about your options.
We are happy to help you determine if buying a home is right for you.