Ideally, everyone wants a place that they can call their own, but not all of us are going to be lucky enough to win the lottery to pay off a house or other debts. Buying a house is a dream that many strive to realize, and some might even get into purchasing for a real estate investment. That said, buying a house can be scary, particularly for young people. In fact, a new study from Truehold shows that young people are becoming becoming more house-rich, cash-poor, meaning all of their money is tied up in their home.
With that in mind, some, on the other hand, opt to rent a house instead. But, either way, wanting to stay in a safe and comfortable place for you and your loved ones is what people strive for. The decision to rent or buy a home comes with factors that help individuals decide which route to take.
Real Estate Market Trends
Recent statistics indicate a significant shift in the real estate market, impacting renters and potential homebuyers. According to the National Association of Realtors, there has been a fluctuation in housing prices due to economic factors affecting affordability for many. Furthermore, rental markets in major cities are witnessing a surge in demand, leading to increased rental costs. This shift makes it crucial for individuals to assess their financial situation and long-term goals before deciding to rent or buy.
Real estate professionals and mortgage brokers can help you decide whether it’s best to rent or buy a house.
A realtor can help you find suitable rental property or house for sale. You can take advantage of their access to multiple listing services (MLS), which allow you to quickly narrow your search depending on your choice of location, property type, and other parameters. For example, a real estate agent in Virginia can also assist you with local house tours and price negotiations.
On the other hand, mortgage brokers specialize in finding the right financing options for homebuyers, granting you access to various loan programs. By assessing your financial situation, creditworthiness, and specific needs, they can help you explore different funding options for the property you’re interested in. If you want to consult a certified mortgage broker, learn more here.
Let’s go into whether renting or buying a home is the best choice for you.
Renting A House
This refers to occupying a residential property in exchange for periodic rental payments. You enter into a lease agreement with the property owner or landlord. Most people rent an apartment, a townhouse, or a single-family residence. As a tenant, you are obliged to follow a set of rules, such as pet and visitor restrictions.
Here are the pros and cons that can help you finalize your decision.
The Pros Of Renting A House
No Maintenance Bills To Pay
The maintenance of the property usually falls to the owner of the home. You don’t have to pay for repairs or maintenance if you’re only renting. The landlord’s responsibility is to ensure that the house you’re staying in is safe and has livable conditions. Appliances that’s already stopped working must be replaced, and the HVAC must be in working order. If something needs fixing, do call the landlord who might have home appliance insurance already. Additionally, your landlord is on the hook for residential pest control, another expense.
Monthly Expenses Are Fixed
Such expenses pertain to your monthly rent, and it doesn’t change until your landlord informs you. But, if you need renovations and the landlord allows it, they’d either shoulder the expenses or increase your rent. It’s different from buying a house because the buyer will need to work with a lender and qualify for a mortgage loan. The loan will be repaid monthly in lieu of rent payment.
Mortgage payments can increase when taxes or insurance goes up. Mortgage payments can also increase when you take out an interest-only period end. Homebuyers wanting to explore mortgage options should look into sources similar to Origination Data. The website lists the top mortgage lenders for borrowers to seek out.
There Is Minimal Risk
Buying a home is another way to invest in real estate. But, just like any other investment, it also comes with risks. Renting instead prevents you from experiencing a market crash that can endanger your ownership. If there’s a disaster, you’ll spend money to fix it, which could make a massive dent in your savings if you don’t have insurance. The only risk you get when renting is whether you’ll be content with the home or not. On top of that, you’re not responsible for a roofing inspector when renting.
It’s More Flexible
Although renting also comes with a contract, you’re allowed to leave the property as long as you adhere to the terms. If you don’t, you can expect your deposit to be forfeited. Renting gives you the freedom to move away if necessary. For example, if the city you rent in turns out to be dangerous and not one of the safer cities around you, then breaking a lease is faster and easier than trying to sell a house. The lease might hold you for only a year, but it’s easier to leave if your priorities change, and you don’t like your location or situation anymore.
No Real Estate Taxes
Property taxes are only one of the expenses you need to pay if you own the house you’re living in. The amount of real estate taxes varies per county, and it can burden other people. Taxes can amount to thousands of dollars annually, depending on your location.
Calculating property tax is complicated because it’s based on estimating the property value of the home and on how much land it’s built on. Property taxes can significantly make it difficult for homeowners to keep up with payments.
We urge you to work with an agent if you’re having trouble understanding the financials. For example, if you’re buying in Ventura, CA, then you should find a quality Ventura real estate agent to assist you. Regardless of where you live, working with professionals in the market is important.
Disadvantages Of Renting A House
Annual Contract Renewal
You can stay at the house depending on the duration given by the landlord. But, once they ask you to renew your contract, you need to sign it if you want to keep living in the house. There’s no need to pay ahead of time and pay another deposit.
Instability
When your family lives in a rented space, there’s a risk that the landlord will ask you to leave within a 30-day notice for breaking the rules or terms in your contract. The landlord may also want to find the quickest way to sell the property, which is a significant reason tenants will have to be let go. The rent can also go up due to inflation, which applies to affordable housing programs. On the other hand, homeowners won’t be forced to look for another house unless they can’t pay their mortgage.
Rules To Follow
When you’re renting a house, your rights to what you can do are limited. Signing the contract means you’re bound to follow the terms set by the landlord. Any activity that breaks the rules stated in the agreement is ground for termination. You’ll have to move out even if you’re not ready.
You Can’t Build Equity
Unlike like the benefit you get from owning a home, rent money goes to the landlord to maintain the property. Unlike homeownership, where you can build equity after you buy or build the home, rent is the only payment for your stay in the house. Homeownership is considered a long-term investment and, therefore, comes with a risk. If you own the house, you can increase its value.
The house’s location is also important because there’s a growing economy. If you’re renting your home, the modifications you make also add value to the place. New establishments opening near your home can also increase your rent.
Pros And Cons Of Buying A House
Now that the pros and cons of renting have been discussed, it’s time to get to know the benefits and disadvantages of buying a house. But, first, it pays to know how to go about seeking a mortage lender.
Seeking A Mortgage Lender
Before shopping for a dream home, you must first find out if you’ll qualify for a mortgage loan. Mortgage lenders are everywhere, and you’ll need to seek one that’ll give you the best deal. Lenders also give you varying rates depending on the location. If you’re eyeing properties somewhere south, especially in high-priced markets, you might wonder, what is a jumbo loan in Florida? It tailors financing for properties that exceed conventional loan limits. Additionally, keeping a good credit score will not only be relevant for lower interest loans, but for another source of funding. With a better score and knowing the minimum credit score for loans, you’ll have access to a higher credit limit on your credit cards as well as cash back rewards, welcome bonuses, and other benefits.
As of 2021, the top five metro locations by mortgage origination volume are as follows:
- Los Angeles, Long Beach, and Anaheim, CA
- New York, Newark, and Jersey City (NY, NJ, and PA)
- San Francisco, Oakland, and Berkeley, CA
- Washington, Arlington, and Alexandria (DC, VA, MD, and WV)
Benefits Of Buying A House
You’re living in when you own the house, and some benefits come with it. It’s in your name, so you have the right to do whatever you plan to do with it. You and your loved ones can also stay in it for as long as possible. The following are the advantages of owning the rights to a house:
Stability
Owning a home means you can live in it for as long as you want. It gives a sense of stability and assurance that you’ll always have a roof over your head.
Privacy
Accessibility and deciding who gets to have it are benefits of owning a house. Unlike renting, the landlord has to drop by anytime to make regular checking on the property’s condition. That’s also the case if there’s anything that needs fixing.
Investment
Your house has the potential to increase in value, especially when you’re building equity in it. Equity is the dollar amount of your home.
Freedom To Renovate
When you own the house, you have the right to decide to make modifications to your home. You can change the paint and the floor tiles, and decorate them the way you want. There’s no need to ask for permission from anyone.
Disadvantages Of Buying A House
While it may seem ideal to buy a house, not everybody can afford it. You’re not only paying for the cost of the house because there are closing costs and other fees that you need to take care of.
Down Payment
The initial payment could reach up to 20% of the home’s purchase price. You don’t have to pay a down payment in some types of loans.
Mortgage Insurance
Borrowers who make a down payment of less than 20% must purchase mortgage insurance. The amount you’ll pay depends on the percentage you borrow. For every borrowed US$1000,000, expect to pay from US$360 to US$840 per year. When the loan is government-backed, and you spend 20%, you’ll pay a lifetime mortgage insurance premium.
Closing Costs
The closing costs include inspection fees, loan origination fees, surveying fees, appraisal fees, broker fees, title search and title insurance, and transfer tax. Overall, the closing costs will add two to five percent of the home’s purchase price. There’s no cash upfront for closing costs because they’re included in the mortgage.
Costs That Come With Owning A Home
Owning a house also comes with issues depending on your lifestyle, changes in your living situation, and external forces that may force you to make decisions. For example, there can be a time when you want to change locations. A house can be considered an illiquid asset because it’s not easy to sell it whenever you want. And, even if you do, you’re likely to get a lower offer, especially if the housing market isn’t showing favorable conditions. It’d help if you also thought about transaction costs that’ll be deducted from the sale.
Homeownership can be considered costlier than renting a home despite lower mortgage payments. Some expenses come with becoming a homeowner. These include:
- Homeowners’ insurance
- Property taxes
- Earthquake/flood insurance (depending on location)
- Water and sewer service (if the landlord requires you to pay for it)
- Pool cleaning
- Pest control
- Garden maintenance
- Trash pickup services
Buying a house comes with not only expenses but also paperwork. You also need to open your schedule for appraisal and house touring if you want to get your dream home. Your time should be well spent, just as one does with hard-earned money.
Rent-to-Own Options
Another pathway to consider is the rent-to-own option. This arrangement allows renters to lease a home with the opportunity to purchase it later, often securing a set purchase price at the beginning of the lease. This approach can be particularly beneficial for those who need additional time to accumulate a down payment or to enhance their credit score.
An intriguing aspect of rent-to-own agreements is the potential to upgrade the property during the rental period. The improvements to be made could increase the home’s value, offering a financial advantage should you purchase and sell the property. However, it’s crucial to thoroughly understand the terms of the agreement regarding property enhancements and their impact on the eventual purchase. Consulting with a real estate attorney is advisable to navigate the specifics of this choice effectively.
Wrapping It Up
Whether you’re renting or about to buy a house, it’s essential to understand the pros and cons of both to decide which one is best. If you’re struggling with legal issues, felony charges, or something like that, you might not be eligible for loans, so renting is the answer for you. But there are many other reasons for renting instead of buying a home. One of them is that it’s economically practical because a home comes with costs that one might not be able to afford now. Whatever you decide to go for, it should allow you and your loved ones to live comfortably.
