Author: Christian Olin, VP of Direct Lending at OnQ Financial
Unless you plan on living with your parents forever, you’ll need to explore housing options. One of the first decisions you need to make is whether to rent or buy. There are a few factors that play into this choice. Think about how long you’re planning on living in the area, the cost of the area, and your down payment.
When you purchase a house, every monthly mortgage payment you make builds your equity. By owning a home, you’re adding to your worth. With higher equity on your home, you can apply for things like an equity loan or line of credit if you need it.
Another substantial financial advantage of owning a home is that property taxes are tax-deductible. You can also deduct your mortgage interest in your tax returns. Tax deductions can add up quickly, and when tax season rolls around, you could see a hefty return!
With home improvement shows rising in popularity, it’s hard to avoid the renovation itch. While there are options to improve your rental property’s appearance with things like peel-and-stick wallpaper or cabinet covers, these are temporary and can seem like a waste of money. By owning a home, you can invest in long-term improvements that make your house feel like a home.
Finally, by owning your house, you don’t have to deal with landlords. While some landlords have minimal contact with their tenants, some may be a bit difficult to deal with if they are breathing down your neck. Renting can sometimes feel like you don’t have much privacy in your own home, and who wants to feel like that?
While these are all considerable advantages to purchasing a home, there are also situations where renting is a better option. We’ll dive into those later.
Many people think that having a mortgage is more expensive than renting, but this is a myth. The difference in cost does depend on your area, but in many areas it is cheaper to buy a home. If you are wanting to compare the prices of buying or renting in your area, there are a few calculators you can use to help you.
Trulia has a great page where you can enter your zip code, target monthly rent, target home price, and the down payment amount you have available. It’ll give you a graph comparing the costs of buying and renting and tell you at what point buying becomes cheaper than renting.
Nerd Wallet has a similar calculator, but it also includes the interest rate and length of the loan. This can be helpful if you’re wanting to explore different loan options and are looking to weigh out the benefits of each.
A big factor to take into consideration is how long you want to stay in the area. While it may save you money after a few years to buy, it doesn’t make sense to invest in property if you’re planning on leaving before you hit the breakeven mark. The calculators mentioned previously are excellent tools to utilize to see if buying a house is sensible with your projected timeline.
A mortgage is a significant responsibility and should take a lot of consideration. You’ll know you’re ready to buy if you’re willing to invest in that area.
Housing shortages and surpluses occur in different areas across the nation. With a shortage, housing prices will skyrocket since you’re in a market where sellers have the upper hand. On the flip side, housing surpluses can cause prices to drop, and it would be more financially reasonable to buy a house then while it’s inexpensive. Check out areas with a housing shortage here.
Some areas have rent gaps, where it is significantly cheaper to own than rent. Urban did a study of some major metropolitan areas around the country to show the percent difference in average price. In cities like Miami and Detroit, it can be over 10% cheaper to buy. In San Francisco on the other hand, it’s over 40% more expensive to purchase a home. Make sure to look into these gaps in your area to determine which is best for you and your family.
A down payment is one of the most overwhelming parts of buying a home. It’s a large chunk of change! It’s essential to save for a down payment to lessen your monthly mortgage costs later on. Explore different loan options to see what’s available with the down payment you’re comfortable paying.
Home buying courses are also available both online and in-person and can help you navigate through this process. You can learn valuable information to help you make informed decisions. If you’re looking for a tool to help figure out your down payment, you can check out this calculator.
Owning a home comes with many advantages, but it is a big decision that should not be taken lightly. There is no single answer to the question of whether you should rent or buy, given so many factors that play into it. Utilize tools available to you, such as courses and calculators, to help find what’s best for you.
Renting can save you money if you’re planning on living in a more expensive urban area, or if you’re planning on moving soon. Buying may be your better option if you want to build equity, invest in property in a specific area, or want to use property taxes and interest as tax deductions. In some places around the country buying a home is 26.3% cheaper than renting. So it may all depend on where you choose to live. Don’t forget the appeal of the freedom of renovating as well!
Renting and buying both have their benefits and drawbacks, but by becoming more informed on each option, you can make the decision that is best for you and your family.
Meet the Author:
Christian Olin, VP of Direct Lending at OnQ Financial
Christian started his career right out of college as a rookie on Wall Street with Morgan Stanley. After cutting his teeth there, he was quickly poached by a private investment bank, which is where his love of finance grew into a lifetime obsession. With over 20 years of experience, he has become a specialist at sales management, strategic business development, building best of breed teams, and cross-functional selling. In particular, his experiences in emerging finance technologies have been useful in his current role as Vice President of the direct lending team at On Q Financial. A place where he continues to create new opportunities for mortgage lenders and their partners while improving the bottom line.
The post To Buy or Rent? What is the Best Option? appeared first on Chenoa Fund - Down Payment Assistance.