To Rent or Own? The Top Money Questions and Answers You Need to Know

Apr 30, 2018

A major decision that people are faced with as they move through life is whether to rent or buy a home. The answer can be different from one year to the next. While there are advantages to both, statistics show that home ownership is still favored with the U.S. Census Bureau reporting 63.7 percent home ownership figures for 2017’s second-quarter period.

The factors that must be evaluated when it is time to decide whether to buy or rent relate to cost to purchase or rent a home, expected length of time in the home, qualification requirements, investment opportunities, rental restrictions, maintenance and repair expenses, and practicality of relocation. When calculating costs, it is important not to forget all costs, such as the cost to furnish a specific home or apartment and lost opportunity costs such as not having federal tax benefits as a renter. Too often, soft costs are often left out of the debate.

Other factors may include more esoteric reasons for buying or renting such as meeting the expectations of others and being able to do whatever you want inside of your home in terms of design and home improvement projects. It is not unusual for people to decide to rent again after being long-term homeowners simply to shift the responsibility of lawn care and home maintenance to another party to get rid of the “hassle.”

Renting vs. Buying a Home Based on Financial Considerations

While there is no denying the fact that a home purchase is an emotional purchase, the “dollars and cents” of this potentially large transaction come into play as decisions are made. People looking to make an investment will consider buying a home for that reason. Another point of view expressed by many renters is that they would rather take the money they save as a renter and invest in something other than real estate.

Home Purchase Costs Compared to Initial Rental Deposits

Buying a home is a considerable investment as compared to leasing an apartment or house. In most states, the required deposit amounts for getting into a new apartment or home rental are 1.5 percent of a month's rent, on the high end. Buying a home is much more expensive. The down payment alone is going to be from 3.5 to 20 percent or more of the home purchase price, depending on the type of loan, the borrower’s goals, credit criteria, and cash on hand. That doesn’t include home inspection fees, upfront property taxes, homeowners’ insurance and closing costs.

Ongoing expenses related to maintenance costs, homeowner’s insurance, property taxes, homeowner’s association fees, utility and waste removal fees, private mortgage insurance (in many cases), and repairs and furnishings also add significant expenses to the homeowners' monthly outlay. Granted, it can be argued that some of the expenses are paid indirectly by renters as either pass through expenses that make rental prices higher or as expenses a renter would still have such as renter’s insurance to protect their furnishings against fire and theft.

Questions and Answers:

After reading the information above, there are many questions left unanswered. Below are some frequently asked questions new homebuyers or renters have.

Q: What protections do I have as a renter, so I know I can stay for a longer period of time?

A: The lease is your main protection. There are longer leases available than the standard six-month or one-year lease, but many landlords are reluctant to sign longer leases. As a renter, you can try and negotiate a longer lease for the length of time you want. There are landlords who like longer leases.

Q: How long does it usually take to close on a home loan?

A: The time it takes to close on a home loan varies dramatically depending on the borrower and lender. It is common for it to take between 30 and 60 days.

Q: Can I count on my equity to increase enough to cover my repair and maintenance costs?

A: No. There is no way to predict equity gains or losses since real estate markets fluctuate with market conditions.

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