One of the biggest dilemmas we face as adults isn’t “to be or not to be.” It’s “to buy, or not to buy” … a house!
That is the question that millions of us face as we debate between continuing to pay rent or putting that money toward a mortgage payment.
On the surface, it seems pretty cut and dried. You can either keep paying your landlord money that goes nowhere, or put it into a home where you could, eventually, have equity and ownership.
The reality is less black and white. There are a lot of pros and cons to both renting and buying that you might not be aware of.
These down and dirty realities will help you make an informed decision the next time this all-important question arises!
1. The Finances
Let’s start with the similarities.
Whether you’re buying or renting your home, the utilities are going to be the same. Occasionally, an apartment complex will cover your water, garbage, and sewer. When you own your home, you typically are responsible for these expenses.
Beyond that, the monthly payments when you rent are often cheaper than a mortgage. Unless you pay cash for your home, you’re going to pay a lot more than the listed price.
On top of that, there are closing costs, property taxes, and insurance that are added to your loan. If you haven’t come up with a 20% or more down payment, factor in mortgage insurance, too.
2. The Assets and Equity
That equity you’re hoping to get access to? You’re going to have a long time to wait. Most of your monthly payments for a few years are going to go straight to interest, not principal.
Until you start paying off the principal balance, you don’t have home equity. The exception to this is when a reappraisal shows your property is worth more than you paid for it.
In the meantime, your home is not considered an asset. For a year or so, you might even see that your FICO credit score goes down. It takes consistency for you to prove that you’re going to pay your mortgage regularly.
One more thing. Because you have a high outstanding debt, it will be hard to get anything else on credit for a while. Lenders like to see that you have a lot of open credit that you’re not using. Until you’ve paid on your loan a while, it will show that you maxed out your credit, or are close to it.
This financial bind is often why people choose to rent instead of buy. As a tenant, the only time you have to be concerned about your credit score is when you first fill out your application or if you don’t pay your rent.
3. The Commitment
When it comes to settling down in one place, there are two types of people. Knowing which type you are, and how you feel about a commitment to your location, helps you decide.
Are you one of those who know where they want to be and will stay there forever gladly? Or are you one of the many who don’t want to establish roots quite yet?
There’s no arguing that buying a home is a long-time commitment. Most mortgages are taken out for thirty-year terms. You can try to sell sooner if you decide you want to move. But your plans depend on how long it takes for someone to buy your house.
The positive side of this is that owning a home gives you stability. As long as everything goes as it should, you know where you’ll be next year, and in ten years, etc. There is a lot to be said for the peace of mind that comes with this kind of firm foundation.
There is also an upside to being able to move any time you’d like, as long as you can get out of your rental agreement or your lease is up. It’s much easier to explore your options when you don’t have a house tying you down.
If you’re not ready for that type of commitment yet, stick with renting until you feel ready for deep roots.
When it comes down to it, the decision to rent or buy a home is a personal one.
Only you know your money habits and if you’re ready to invest a significant portion of your finances into real estate. You’re the only one who can decide if you will thrive with roots or if they’ll strangle you slowly.
The general rule of thumb is easy to follow, though. If, after reading these pros and cons, you’re not positive about buying a house, it’s not the right time yet.
Go ahead and sign a new lease or find a new apartment complex and reevaluate your position this time next year!