A decision that many people face in life is deciding whether it is cheaper to rent vs buy a home. The answer is not the same for any two people since there are so many variables in basing your housing decision therefore the best place to start is by researching your options and to develop the criteria to weigh your options.
Cnn.com recently released an article entitled, “Buying is cheaper than renting in most U.S. cities“. This article explains that due to a 56% drop in the S&P/Case-Shiller home price index along with the lowest interest rates in history, that buying a home is the best choice. Additionally there are tax benefits and mortgage interest write-offs that increase the incentives in home ownership. According to Trulia.com, Detroit, MI is one of the best examples of the benefits of buying vs renting. Lastly, buying a home gives you the intangible benefit of the pride of home ownership and living the American Dream.
On the converse, owning a home comes with many liabilities and obligations. When you make the decision to buy a home you are making a long term commitment that may affect your life for the foreseeable future. Once you own a home it is not an easy decision to sell and become a renter once again.
Due to the downturn in the economy and the high supply of homes for sale, this has become a buyers market. Home sellers are facing high competition which leads to long listing periods or significant reduction in sales prices to sell your home. If you do not have the financial flexibility to take a large price cut then your hands may be tied.
When you consider buying a home you must also compare the additional costs you will have above and beyond your mortgage payments or rent. Extra costs for owning a home include higher utilities, water and sewer, lawn maintenance, snow removal, trash service, and home maintenance costs. When you are a renter and your toilet stops flushing, you call the land lord and tell them to come deal with it. When you are a home owner you are rolling up your sleeves and grabbing a drain snake or hiring an expensive plumber.
Factors you should consider in buying vs renting
How long do you plan to stay? If your plans are temporary or less than a few years then the transaction costs and extra obligation will easily wipe out any benefits you have by owning your own home.
Do you have the cash for closing? Most mortgage lenders and banks require down payments to purchase a house. If you do not have money for a down payment and cost associated with closing (title fees, appraisal etc) then buying a home may not be an option.
Do you know the full costs of owning this home? In addition to the mortgage are there home owners association fees, extra insurances (flood insurance) or extra taxes that must be paid? Also have you contacted local utility companies to ensure you have an estimate on heating or cooling a home of this size?
Are there jobs in the area you plan to move? If you buy a home and then lose your current employment, will you be able to find new work quickly or will you need to move?
Overall many would agree that buying a home vs renting is a difficult decision that only you can answer for yourself. The freedoms of being able to paint the walls of your own home and doing weekend improvement projects is immeasurable by anything you can put into a calculator. There are obvious benefits to both options however before you make the decision to buy a home because you smell your apartment neighbor’s spicy food cooking, do your research and compare the options before you decide if you should buy vs rent.
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