For generations, consumers have dreamed of making the leap from renter to homeowner. The idea of owning a home rather than perpetually paying rent is appealing on several levels. Some people want the opportunity to build equity in their homes; others are weary of paying rent without having a stake in their residences; and still others simply want a home to call their own. Whatever the reason, the choice between renting and buying is a significant one. It can also be a difficult one to make.
In the following article, we'll provide a few guidelines you can use to determine whether you should rent or buy a house. We'll begin by highlighting items that suggest owning a home may be a premature decision. We'll then take a close look at the advantages posed by both sides.
Indications That Renting Is A Good Option
First, consider your financial situation. How much debt are you servicing each month in relation to your monthly income? The ratio between your debt and income will play an important role in finding a mortgage lender. If the aggregate amount of your monthly mortgage, property taxes, debt payments, and insurance add up to half of your monthly income, many lenders will balk. A lower ratio is preferred, and in some cases, required.
Next, think about your job. Is there any possibility that you might lose it in the near future? If so, homeownership may represent too large a commitment.
Your credit score is also a factor. A low score will preclude a reasonable rate. Even if you manage to convince a lender to extend a loan to you, the interest rate attached to it is likely to be high.
If, after considering your finances, job, and credit score, you decide that owning a home may be a good decision, review the advantages of buying versus renting.
Advantages Of Buying A Home
When you own your home, you have a chance to build equity in it. It takes a long time to do so since the majority of your mortgage payments during the first few years are comprised of interest, but this is a significant benefit.
Also, you'll have control over the interior and exterior (to an extent). This means you'll be able to decorate it as you desire without asking a property manager for permission.
Owning a house will also give you a sense of community. You'll feel a closer connection to others within your neighborhood. It's not uncommon for homeowners to establish friendships that last for years.
You'll also enjoy a tax deduction for the interest portion of your mortgage payments. This is a financial benefit you're unable to enjoy when you rent.
There are clearly strong motivations for buying a house. To balance the decision, however, it's important to recognize the benefits of renting...
Advantages Of Renting
When you rent, you can easily move whenever you wish. Most landlords and property managers require little more than thirty days notice prior to your vacating your residence. Owning a house makes relocating to another area more complicated.
Another benefit is that you won't need to spend time and money on maintenance and repairs. Gardening, lawn care, and other maintenance items are handled by the property manager. If something breaks - for example, your air conditioner - your landlord is responsible for having it fixed, regardless of cost.
Crunching The Numbers
The next item to consider is whether homeownership poses a good investment. To decide, you'll need to take into account several criteria. For example, the average annual return on stocks is approximately 7 to 8 percent. The return on residential housing (ignoring the most recent crash) typically follows the rate of inflation. Given the risk inherent in both types of investments, which is better?
You'll also need to think about the value of the tax deduction on interest, property taxes, and the amount you'll pay in rent compared to a mortgage payment. Consider every factor that influences the return on your investment, or that which you forgo by allocating funds toward a house rather than stocks.
Most people find homeownership to be a uniquely rewarding experience. However, the decision to own a home is a personal one that should be influenced by your own circumstances and goals.
In the following article, we'll provide a few guidelines you can use to determine whether you should rent or buy a house. We'll begin by highlighting items that suggest owning a home may be a premature decision. We'll then take a close look at the advantages posed by both sides.
Indications That Renting Is A Good Option
First, consider your financial situation. How much debt are you servicing each month in relation to your monthly income? The ratio between your debt and income will play an important role in finding a mortgage lender. If the aggregate amount of your monthly mortgage, property taxes, debt payments, and insurance add up to half of your monthly income, many lenders will balk. A lower ratio is preferred, and in some cases, required.
Next, think about your job. Is there any possibility that you might lose it in the near future? If so, homeownership may represent too large a commitment.
Your credit score is also a factor. A low score will preclude a reasonable rate. Even if you manage to convince a lender to extend a loan to you, the interest rate attached to it is likely to be high.
If, after considering your finances, job, and credit score, you decide that owning a home may be a good decision, review the advantages of buying versus renting.
Advantages Of Buying A Home
When you own your home, you have a chance to build equity in it. It takes a long time to do so since the majority of your mortgage payments during the first few years are comprised of interest, but this is a significant benefit.
Also, you'll have control over the interior and exterior (to an extent). This means you'll be able to decorate it as you desire without asking a property manager for permission.
Owning a house will also give you a sense of community. You'll feel a closer connection to others within your neighborhood. It's not uncommon for homeowners to establish friendships that last for years.
You'll also enjoy a tax deduction for the interest portion of your mortgage payments. This is a financial benefit you're unable to enjoy when you rent.
There are clearly strong motivations for buying a house. To balance the decision, however, it's important to recognize the benefits of renting...
Advantages Of Renting
When you rent, you can easily move whenever you wish. Most landlords and property managers require little more than thirty days notice prior to your vacating your residence. Owning a house makes relocating to another area more complicated.
Another benefit is that you won't need to spend time and money on maintenance and repairs. Gardening, lawn care, and other maintenance items are handled by the property manager. If something breaks - for example, your air conditioner - your landlord is responsible for having it fixed, regardless of cost.
Crunching The Numbers
The next item to consider is whether homeownership poses a good investment. To decide, you'll need to take into account several criteria. For example, the average annual return on stocks is approximately 7 to 8 percent. The return on residential housing (ignoring the most recent crash) typically follows the rate of inflation. Given the risk inherent in both types of investments, which is better?
You'll also need to think about the value of the tax deduction on interest, property taxes, and the amount you'll pay in rent compared to a mortgage payment. Consider every factor that influences the return on your investment, or that which you forgo by allocating funds toward a house rather than stocks.
Most people find homeownership to be a uniquely rewarding experience. However, the decision to own a home is a personal one that should be influenced by your own circumstances and goals.
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