Advantages and Disadvantages of Owning and Renting a House
Are you a homeowner wondering whether renting makes more sense at this point in your life? Or, are you a renter tired of renting apartments and interested in buying your first home? If so, it’s time to evaluate the advantages and disadvantages of each option.
The U.S. rental vacancy rate was 6.8% in the second quarter of 2018, near a 20-year low. By contrast, home ownership sat 63.7% in the second quarter of 2018, near lows seen since the mid-1960s.
Given the expenses related to home buying, younger people begin their adult life by renting an apartment. As they shape their professions, save money, and begin families, many opt to purchase a home.
Homeowners nearing retirement, on the other end of the spectrum, may choose to become renters.
Before we look at the advantages and disadvantages of owning versus renting, let’s look at the costs associated with each option.
Costs of Renting Your Home
Unlike owning a home, renting has fewer upfront costs. Still, prior to or shortly after moving into a new apartment, you may encounter the following costs:
· Moving Costs
Renters, like homebuyers, have to pay to move their belongings, whether by relying on friends, doing it themselves, or by hiring movers.
· First Month Rent and Security Deposit
Most landlords require their tenants to pay the first month’s rent upfront. In addition, landlords require a security deposit to insure against property damage. You may also need to place a non-refundable deposit as well.
The price of renting includes more than a monthly rent payment. The following are common recurring costs:
· Utilities
Utilities vary by landlord and region. In some apartments, renters are responsible for most or all utilities. In others, all utilities may be included in the monthly rent.
· Renters insurance
The median monthly cost of renters insurance is about $15, according to U.S. News. The insurance costs are based on the value and nature of insured property, deductibles, coverage limits, and other factors.
· Monthly rent
This is the number one monthly expense. Rent payments vary widely based on various factors. Such factors include a number of occupants, local market conditions, and the rental size, location and condition.
Costs of Buying and Owning Your Home
There are numerous upfront costs associated with buying a home. These are as follows:
· Down payment
The down payment to pay varies widely based on a couple of things. For instance, type of mortgage loan, local market conditions, and credit profile. Generally speaking, though, it typically ranges between 3.5% and 20%.
· Home inspection
The cost is similar to that required for home appraisal. The inspection helps detect potential issues with the house that a novice buyer may not find apparent.
· Homeowners insurance
The costs vary based on the home’s contents, style, and value, as well as your coverage limits, policy deductible, and credit score.
· Property taxes
This expense widely varies based on the closing date and your local tax rate.
· Other closing costs
Insurance, taxes, inspection, and appraisal are just some of the few closing costs to expect. Others include first month’s mortgage interest, state and local transfer taxes, recording taxes, lender’s and owner’s title insurance, flood certification fee, credit report fee, and loan origination charges.
Homeownership also involves many recurring costs. These are as follows:
· Maintenance
In general, expect to pay 1% of the value of your home on property maintenance.
· Utilities
Among others, you are responsible for things like interior cleaning, exterior painting, and finishing, and replacement of worn-out appliances and fixtures.
· Homeowners Insurance
In 2014, the average annual U.S. homeowners insurance premium was $1,132, according to the Insurance Information Institute.
· Property Taxes
Property taxes are part of your monthly escrow payment. The rates vary widely by location
· Loan payments
Your loan is part of your monthly escrow payment. For the life of your mortgage loan, typically fifteen or thirty years, you need to make monthly principal and interest payments.
For those still pondering over the rent versus buy question, here is an exhaustive list of advantages and disadvantages.
Advantages of Owning a Home
· Mortgages are the cheapest loans available
· Ability to borrow against your home
· A mortgage can improve your credit score
· Pride of ownership
· Ability to remodel, expand, tear down
· You can build home equity and wealth
Disadvantages of Owning a Home
· Can be foreclosed on and lose your home
· Taxes and insurance generally rise
· Increased liability and responsibility
· Pricey homeowner’s association (HOA) Dues
· Expensive maintenance costs
· Home prices may lose value
Advantages of Renting
· “Free” amenities such as pool, gym, security
· No risk of home price depreciation
· No real estate taxes (renters’ insurance optional)
· Down payment isn’t required
· Fewer maintenance costs
· May be cheaper than a mortgage payment
Disadvantages of Renting
· More temporary, less stability
· No tax benefits
· Rent will rise over time
· No ownership or wealth creation
· Rental payment may exceed monthly mortgage cost
In the end, each decision has its Advantages and cons. Another resource to consider is NerdWallet.com's rent vs buying a home calculator to help with your decision. When it comes down to it, choose the option that best fits your situation and budget.
Green Haven Realty Helps Home Buyers
When you're ready to buy a home, we're here to help you. Buying a home can be a little intimidating, but we're experienced REALTORS® and know the steps to help you make the right choices in buying your dream home. Call or text us today at 336.462.9544.
