The American Dream is to own your own home, and for many people that is a stepping stone in their life plans. For a long time, the common path for Americans included graduating from college, getting married, and buying a house. Those ideals changed significantly when the housing market crashed and subsequent recession encouraged a new way of living.
While many people still want that American Dream, others are realizing that buying a home isn’t necessarily economical or worth the energy. Whether it’s better to rent or to buy depends on many factors and individual preferences. The length of time you plan on staying in your home, your budget for housing, and the level of commitment to maintaining a house are all major contributors in terms of what’s best for you.
The Costs of Buying a Home
Purchasing a home comes with large upfront costs. Most banks require a down payment between 3 to 5 percent, which, for example, equates to $6,000 to $12,000 for a $200,000 home. Most lenders also charge closing costs that can add up to thousands of dollars as well. If you plan on staying in your home many years, the upfront costs are worth it; however, if you plan on moving in the next couple of years, it’s difficult to recoup those upfront costs. Conversely, renting typically only requires a security deposit and application fee.
Your housing budget is a significant factor to determine whether it’s a better decision to rent or to buy. The New York Times found that when considering renting or buying two similar homes, buying is a worse choice when rent is $961 a month or below. Considering selling and buying costs, insurance and maintenance, it’s not always a better economical decision to buy your home.
The Costs of Maintaining a Home
Your budget and length of stay are not the only factors to consider when deciding whether to rent or buy a home. There are also responsibilities associated with owning your own property. When buying a home, it’s important to budget for big-ticket items such as a new roof or your heating and air conditioning. If your HVAC system breaks, the cost could be thousands of dollars to repair or replace. If you have issues with your plumbing, you are responsible to repair it. Renters can simply ask their landlords to come in and fix broken equipment, with no related fees or increase in monthly payments
If you or the other members of the household are handy, this isn’t as major of a concern; however, if don’t have a trusty plumber on speed dial, or own your own set of wrenches, maintenance and repairs could be a good reason to rent and leave those troubles to your property manager.
While there are many conveniences of renting, there are some drawbacks as well. When you rent, you must comply with the rental property policies. Any painting or changes you make to the apartment or home must be allowed or approved. You also must be cautious about taking good care of the home to ensure you receive your deposit back once you move out. Some places don’t allow pets, or require an additional security deposit. Plus, pets sometimes have a mind of their own, and their actions could jeopardize your deposit.
If you simply look at the monthly mortgage versus monthly rent, it may be enticing to buy a home as soon as possible; however, you would be comparing apples to oranges. There are far more upfront costs with buying a home, and many other factors to consider. For many people renting is the better choice.