The choice between buying a home and renting a home is one of the most important you will make. Many factors will enter into your decision, and the good news is that there are great opportunities in both owning and renting. Here are some of the most frequently asked questions:
Q: Which is best, buying or renting?
A: The truth is that there are benefits in renting and there are benefits in ownership. At the same time, whichever form of real estate you select, there are drawbacks and pitfalls we can find.
Q: So how do we decide?
A: The first step is to find out if ownership is even an option.
Because most of us need long term financing for 80% or 90% of the purchase price, we need to find out if we can get a loan.
The easy way to do this is to call a reputable lender, such as your credit union or community bank, and ask to be “pre-qualified” over the phone. This step should cost you nothing, and will give you a good idea as to whether or not owning is an option at this time.
So, let’s assume we are qualified and that we do have the needed funds for the down payment and other fees and costs.
Q: Do we rent or buy?
A: Assuming you have the choice, your next step is to estimate how long you plan to live in the same place. If the answer is three years or less, my advice is to rent.
One of the disadvantages of owning a house or condo is that there are high transaction costs whenever you decide to sell. It is not unusual for the seller to pay a marketing fee of 6 to 7 percent, and buyers often expect sellers to participate in settlement costs, which can easily add another 3 percent or more.
As a result, if your home has not gone up in value, you may lose money by selling in the first few years of ownership. With that caveat, here are my pros and cons:
PROS of RENTING A HOME
- Flexibility - move when you want, where you want.
- Repairs & maintenance - just call the landlord!
- Location & amenities - by renting, you may be able to live in a better area and have a pool and a clubhouse, etc.
- Finances - By renting, you may be able to save on your overall housing costs, allowing you to save money over time.
THE BOTTOM LINE:
Renting your home as opposed to buying it is a tough call for some and an easy choice for others. It is certainly one of the largest financial decision most of us make. Begin by understanding the options you have, then make your choice based on your individual preferences.
Buying a home is a great decision for many. At the same time, ownership carries with it a longer term commitment to one place and an increased level of responsibility for the property. The final decision is up to you.