To rent, or to buy? This is the question that follows many adults in this day and age, and it’s a good one to ask. Is renting cheaper? Does buying call for too many pre-requisites and responsibilities to sign up for? Does renting rob a person of the joy of having a home to call their own? Is a mortgage worth it? Should you rent or buy your next home? It’s a legitimate question that is important to ask, and you should educate yourself on which route is the best. We know the answer, and if you continue with this article, you will too!
Renters are at the mercy of their landlords. This is simply fact! A renter cannot make updates or changes to the home, and if the appliances or the building is outdated, there is not much they can do about it. Large remodeling projects are forbidden, and the local economy’s influence on their landlord plays the biggest role in their monthly housing payments – not a country wide market rate that is the same for everyone. Therefore, someone in a big city could be paying more than 10 times the amount of a person who lives in the country – for the same size rental property – simply because the landlord decided that it should be so. A landlord can also decide at nearly any time that their tenant is going to be subject to a rent hike – and there isn’t much the tenant can do about it but move into a different rental property.
The Urban Institute has recently found that renters deal with greater money uncertainties than homeowners. Typically, a homeowner will have a fixed rate mortgage, meaning that their housing costs are the same almost every single month, and therefore quite simple to forecast. As we mentioned previously, renters are at the financial mercy of their landlords, who can raise the rent at virtually any time. It has been found that more renters than owners lack confidence in being able to save a mere $400 to cover an emergency expense – over 10% more. It has also been found that renters are more likely than home owners to have problems paying for housing, food, medical needs, or utilities. Freddie Mac reveals that two out of three renters found it difficult and stressful to pay their monthly bills over the last two years. With the way the rental market changes and fluctuates, it is no surprise that homeowners typically have a much easier time forecasting their finances – they have a set rate that never changes!
Buying can help you build equity. Putting money down to pay for your home rather than paying rent is the same as investing money in an asset. The asset is what builds you equity (the difference between the value of the home and the value of the mortgage). As you pay your mortgage, you increase your equity in the property. If you are paying rent, you don’t build equity with every payment. Really, you don’t build anything. There is absolutely no negligible reward or achievement gained from paying rent – even if it is dutifully paid in full and on time every single month.
Eventually, you don’t have to make payments anymore. When you pay off your house, that’s it – you no longer have monthly housing costs to pay. When that happens, your overall monthly bill total is going to plummet. When you rent… Well, you never stop paying rent for the entire time you live at the rental property. There is never a “finish line” when you rent as there is when you buy. Eventually, buying a home will save you money. There is no question about it. Another thing to think about that is in this same vein: When you put down a down payment on a home, you pay only a portion of the home’s value but still get to access 100% of the home. When you rent, you pay the full amount every month for access to the home, and almost always have to offer multiple fees up front – the first month’s rent, a deposit, a cleaning fee, a pet deposit, the last month’s rent, application fees, processing fees…. and not a penny of it benefits the renter. It is one hundred percent profit for the landlord. /
Homeowners are allowed to deduct mortgage interest and property taxes when they file their tax returns every year. Yes, we’re serious! Renters get no tax deductions. For example, on a $300,000 home, owners typically receive up to (the equivalent of) $335 per month in tax deductions. To apply this to an average monthly mortgage cost of $1,731, you would be left with a total monthly mortgage cost of $1,396. That’s a huge difference, can make a big dent in your monthly expenses, and it is certainly a perk that renters simply do not have access to! This significant savings from tax benefits can often make owning your home much cheaper than renting – especially when you pair your savings from tax deductions with your savings from having your monthly mortgage cost remain the same every month instead of being at the whim of local market rates.
The entire portion of a renter’s monthly payment goes to the landlord – always, and no matter who you rent from. There is no benefit to the renter at all in this situation, and absolutely zero return on the renter’s sizeable investment in monthly rent costs. When a homeowner makes their mortgage payment every month, however, a large portion of that payment is paying down the loan’s principal each month, giving the owner more equity in their home – and therefore, a return on their investment. The loan pay-down each month is required as part of the mortgage agreement, of course, and there is no getting around it – but instead of that money going towards another person, it goes towards an investment by the owner into their own home – almost like forced savings that benefit the owner. In the end, the financial situation of the homeowner is better off than the financial situation of the renter, simply because renting a home is profitable for the landlord, and buying a home is profitable for the home buyer.
Stability is something that most adults crave – even subconsciously. When you own your property, it belongs to you, outright, until you choose to sell it. The only way you can legally be forced to leave a home that you own is if you stop making payments on the mortgage and the house goes into foreclosure. If you have found the perfect home in the perfect neighborhood, this can be great news. However, if you are a renter, you could be subject to being asked to leave the property within 30 days, at nearly any time – whether the reason is fair or not. It is not uncommon at all for landlords to sell rental properties to other landlords, and for the new landlord to then immediately evict the tenant or tenants so that they can totally remodel the building(s) and then start over with new tenants of their choosing. You simply have less stability when renting, and more security when buying. This can mean keeping your kids in the same school district, ensuring that your commute remains the same, and enabling you to not have to travel to access your local grocery stores, libraries, gyms, or friends. Some people would simply state that they don’t mind occasional changes of pace – but wouldn’t you rather know that your living situation is one hundred percent up to you, and not the whims of your landlord?
We’ve seen here that it’s a simple answer: Buying a home is a much better financial prospect than renting one. But what can you do if you can’t afford the large down payment that is required when buying a home – or if your credit is not good enough to pass the loan application overview by the underwriter? Well, the simple answer is that help is out there. There are programs in place (both by lenders and the federal government) meant to help prospective home buyers by forgiving percentages of their down payments, their low credit scores, or their self-employment. There are lenders that will custom design a mortgage for their prospective home buyers with trickier circumstances, and government designed loan programs that are tailor made for those with issues that otherwise would stop the mortgage process in it’s tracks.
No matter what situation you are in or how troublesome your finances have become, you must always work towards buying a house – even if you can’t buy one right now. Work on your credit, pay off your debt, or move to a business industry with more promising work – whatever you have to do to start preparing your financial health for buying a home. Like we discussed above – it’s surely worth it!