Renting versus Buying
Is it better to rent or purchase a home? There is no clear cut answer to this question, and most of the time the answer depends largely on an individual’s situation. What might make a lot of financial sense to one person might be a disastrous financial decision for another. For this reason, you should take your own financial situation into consideration before deciding whether you should continue to rent or to purchase a home.
No matter what your financial situation, there are some statements that apply to everyone when deciding whether to rent to buy:
There is more to it than the monthly payment. You can’t just look at the monthly financial obligation and use that as justification for one decision over another. Even though a mortgage payment might be less every month than rent, there are more potential financial obligations that come with owning a home. When something breaks, you are the one to pay for the repair. When annual property taxes are due, it comes from you or from an escrow account that you fund. In other words, there is much more to owning a home than the monthly payment. Don’t just look at the monthly payment versus the cost of your monthly rent.
Homeowners enjoy some financial advantages. The interest you pay for your mortgage might be tax deductible, and after your home has appreciated for a few years you may be able to tap into the equity in order to get your hands on some money at a low interest rate for debt consolidation or some other purpose. Of course, not every home appreciates in value, but tax deductions and value appreciation aren’t usually features of renting a home or apartment.
Renters can walk away with less penalties involved. Breaking a lease almost always involves some pretty hefty fees, but walking away from a mortgage loan involves some very serious consequences. It’s one thing to owe a landlord a couple thousand dollars, but it’s another thing entirely to have a foreclosure listed on your credit report for several years while also owing whatever the deficit on the balance is after the home is auctioned off.
Don’t even think about buying a home right now if your credit is a wreck. Buying a home is the American Dream, but buying a house with horrible credit will be a nightmare. If you manage to find a lender willing to give you a mortgage you’re going to pay outrageous fees and a really high interest rate. It’s a far better idea to rent for a year or two while you get your credit under control and maybe even build up a down payment to make your mortgage loan application more attractive.
Before you make your decision whether to rent or buy, take a hard look at your personal financial situation and figure out what’s best for you. You should also run some numbers through a Rent versus Buy calculator to see which scenario makes more sense.
