Note: This is a guest post from Jennifer Riner of Zillow.com
Most individuals dream of becoming homeowners one day.
Home-ownership is not a reality for everyone, and purchasing property is one of the riskiest and most profitable investments. However, most financiers would agree that buying trumps renting.
Rent can cost more than a fixed-rate mortgage, and lessees don’t hold equity in their rented homes. However, special circumstances can render renting the more economic, practical choice.
Whether looking for a primary residence or a vacation home, consider the benefits of renting before making an offer.
Most buyers searching for new homes plan to live in one place and hold stable jobs.
Individuals anticipating drastic career switches might want to hold off on property purchases – their future employers could ask them to move halfway across the country. Selling a home isn’t like breaking a lease. The process is much more complicated given equity is on the line.
Breaking a lease can be as easy as paying an extra month’s rent or forgoing a security deposit. In the long run, moving out of an apartment early may be cheaper (and certainly less stressful) than attempting to sell a home.
Decent landlords take care of just about everything when it comes to their units’ maintenance.
Granted, tenants are liable for avoidable damages, such as purposely punching holes in the walls or breaking furniture and appliances out of spite. Aside from tenant-related issues, property owners are responsible for replacing old or broken appliances, aesthetic modernizations, roof repairs and plumbing leaks, among other assumed expenses.
Homeowners, on the other hand, must pay all of their property and structural costs themselves. Heating, air conditioning, water, electricity, internet, landscaping and general repair bills are monthly realities for homeowners, and should be major elements of a projected budget.
Some renters are required to pay utilities, such as internet and electricity, separately. But, many landlords choose to lump those costs in with monthly rent.
Renting is the obvious choice for individuals just beginning their careers who haven’t acquired large savings.
Down payments take years to pull together, given most buyers aim to provide 20 percent of the sale price upfront. Those who don’t opt to put 20 percent down have to pay private mortgage insurance fees and may be underwater until they own enough equity in their home to either breakeven or profit at resale.
If 20 percent is unattainable, consider renting on a budget for a while until ready to invest in a home.
Insurance costs and property taxes can add up quickly. Many new buyers forget to include these in their projected monthly budget after closing.
Use a mortgage calculator to determine potential total monthly home owning costs. Be sure to detail additional homeowners association (HOA) fees, if applicable. HOA fees are typically associated with condominiums, where residents contribute regular payments for the upkeep of their shared communities and complexes, including structures, clubhouses, parking garages and other collective spaces.
Financial strains, such as foreclosures and bankruptcies, can wreak havoc on credit scores.
Landlords are slightly more forgiving when it comes to determining if someone is capable of paying their rent on time than banks that require solid financial history before blindly administering home loans. Home purchases involve more risk, so building up credit scores to ensure loan approvals and receive good rates is pivotal for all buyers.
Solid rental history assists in raising damaged credit scores, but requires timely payments to take effect. Those who have been afflicted by recent monetary issues or who lack reputable payment history (i.e. recent graduates or young professionals) can rent within their budgets to build financial profiles.
Buying isn’t the only option, and outlying factors can sway highly affluent individuals to lease homes instead. Use the breakeven horizon, or the point at which renting a home ends up costing more than buying, to supplement the aforementioned deciding factors.
Location, as always, plays a key role in the affordability of a mortgage versus median rent, and should be seriously considered by renters and owners alike.
Dustin Riechmann created Engaged Marriage to help other married couples live a life they love (especially) when they feel too busy to make it happen. He has many passions, including sharing ways to enjoy an awesome marriage in 15 minutes a day, but his heart belongs with his wife Bethany and their three young kids.