With Americans spending more than 37% on average
for housing costs, choosing to rent vs. buying a house can be a difficult decision. Both the rental and housing markets have been roller coasters in the last couple of years with the changing economic landscapes. While renting offers some alluring benefits, especially temporarily, for many people, owning a home means they’ve achieved the American dream —they’ve “made it.” In this article, we look at the pros and cons of renting vs. buying to help you decide which path might work best for you.
If you're interested in comparing costs, see our mortgage vs. rent calculator
Pros of Owning a Home
Owning a home brings both tangible and intangible benefits that are hard to ignore. Let’s take a look at some of the top ones that bring peace of mind to homeowners:
1) Building wealth with your home
While you won’t find any guarantees with housing markets, the upside with home ownership, in most cases: You’re making a smart investment. You’re building equity over the years as you pay off your mortgage and your home appreciates in value (cha-ching!).
In the first couple of years, you may be paying more for your home due to private mortgage insurance (PMI) and interest than you would be with renting. However, once you’ve paid off the mortgage, you no longer have to make such large housing costs, which is especially useful when it comes time to retire! You may also be able to look into renting out your home or selling it to downsize.
Homeowners sometimes benefit from mortgage interest and insurance deductions, so be sure to consult with a tax advisor to ensure you’re getting those tax breaks if you’re eligible. You may also be able to tap into that hard-earned equity in the future to cover tuition costs, renovations, repairs, and more.
2) Enjoying more freedom and privacy
You can paint the rooms whatever colors you choose, add ornate landscaping, update the cabinetry—the sky is the limit with the changes you can make to your home and property. Plus, getting your own parking space, possibly a garage, and likely extra space for storing things like boats and recreational vehicles. You also won’t have to deal with upstairs or downstairs neighbors. And, you’ll have more freedom with your pet choices without paying extra housing fees. In sum, you’re the architect of your home’s future.
3) Having more stability
A home often offers a more solid foundation to build a life in one place for all ages. You also don’t have to worry so much about a landlord raising your rent every year or asking you to leave if they decide to sell the property. If you go with a conventional fixed-rate home loan, it’s a good feeling knowing exactly what your principal and interest payments will be for years to come (not including insurance and taxes).
Cons of Owning a Home
Of course, it’s a good idea to also consider the cons of owning a home and being prepared to handle the challenges that come along with them.
1) Overcoming obstacles with down payment and closing costs
Saving for a down payment and closing costs on a home loan can be difficult. At SCCU, we offer a variety of loans and assistance that can help reduce those initial home-buying costs:
If you’re still working on improving or building your credit, check out this article for helpful tips
2) Paying for additional homeownership expenses
Whether you’re building a new home or buying an existing house, you’ll be responsible for extra expenses such as pest control, property taxes, possible neighborhood association fees, utilities, and homeowners insurance. You may also have to deal with unexpected repairs, such as a roof leak or an air conditioning issue.
Before you buy a home, be sure to have a qualified home inspector thoroughly inspect it to ensure you’re making a wise investment. Your realtor may also be able to make some negotiations with the sellers to accommodate for repairs.
Unfortunately, with many types of home loans, if you don’t put 20% down first, you’ll likely have to pay for private mortgage insurance until you reach 20% equity; however, if your home appreciates in value, you may be able to get a reappraisal to remove that private mortgage insurance.
And you’re more likely to get a low interest rate with the right lender. At SCCU, we offer VA Loans
and Hero Home Loans58
for military members with no private mortgage insurance requirements.
3) Moving can be more difficult
Moving into a home means that you’re putting down roots. If you happen to receive a new job offer or would like your children to go to a different school, it may mean some considerable thought before making a move to accommodate those situations. With so many variations in the home market, it’s sometimes a bit of a struggle to find a new home and new buyers and even more cumbersome to get the timing right with everything involved with two closings.