Which is better: cats or dogs? Coffee or tea? Checkers or chess? These are questions that have seemingly been handed down through the ages and there never seems to be a consensus on which option is the correct answer.
In that same spirit, let’s take a look at another common discussion: Is owning a home cheaper than renting?
The answer to that, much like the other options listed above, depends on who you ask and who is asking. However, there are a few immutable facts you can use to decide which option is best for your situation.
There’s a common belief that renters are “just throwing money away.” That is not necessarily true. While it is accurate to say that homeowners are building equity, it’s also accurate to say the money they’re spending on their home isn’t going toward that equity.
If the roof on your rental property needs repairing, your landlord is responsible. If the roof on your home needs repairing, you are responsible and your homeowner’s insurance may not cover it. That’s not exactly a cheap fix and is at the homeowner’s expense.
Suffice it to say, when you rent, your monthly costs and expenses are more predictable and generally less expensive. You’re also not tied to the place you’re renting. When your lease ends, you can move. (The pain that comes with moving is another topic for another day).
Renting is also an attractive option if you’re not financially prepared to be a homeowner or if you don’t plan on living in your current town or city very long. All you need to pay upfront is your security deposit and possibly your first few months of rent.
There are some downsides to renting. First and foremost there is very little sense of stability that comes with where you live. Your landlord could raise your rent suddenly or sell the property, requiring you to move with very little notice. You can’t fully customize your rental. It will never fully be yours aside from maybe a new coat of paint (if your landlord allows) or some artwork on the walls.
Equity, equity equity. That’s often the first thing that gets offered up when it comes to buying a home. And while that is certainly a great perk, there’s far more to homeownership than equity.
The biggest financial benefit is the cost of a monthly house payment. It’s often less expensive than renting. And with a fixed-rate mortgage, your monthly payment will never increase. There’s no need to worry about a sudden rent increase.
And since we’re talking finances, another big perk is the mortgage interest tax deduction. It subtracts the interest paid on the loan you used to buy your home from your taxable income. You’ll pay less every year over time. Who doesn’t want lower taxes?
Buying a home makes sense on several levels if you see yourself living in the same area for at least five years. Statistically, you’ll “break even” after those five years, provided you have a sensible mortgage. Aside from the money, it makes for a deep sense of stability. You can customize the house as you see fit. Knock out a wall, add a new kitchen island or change out the carpet. It’s up to you.
The biggest downside is that you’re responsible for everything in the home. Plumbing, the foundation, the HVAC system and everything else — including maintenance — on the entire property. If something goes wrong, you’ll wind up paying for it if your homeowner’s insurance doesn’t cover it. (Be prepared for your water heater to fail at the most inopportune moment.) Or if you don’t like yard work and don’t want to pay someone else to take care of it, you’re in for a world of hurt.
Your upfront costs are much more substantial than just a security deposit, however. There’s a lot that goes into the home buying process like inspection fees, closing costs, insurance and more.
So is owning cheaper than renting? Like we said at the outset, there’s no definite answer. According to the US Census Bureau, the median monthly national mortgage payment is $1,200, while the average national monthly rent is $1,207. The difference is negligible. But bear in mind, those numbers aren’t specific to where you live. Thankfully, The New York Times has put together a helpful tool that lets you calculate the difference between renting and buying with your exact details, giving you an idea of which situation would work best for you.
Trust the Home Loan Expert
When you’re ready to buy a home, turn to the team at The Home Loan Expert. We’ve helped buyers like you get the best possible loan rates for more than 15 years. With years of combined experience, we know how to streamline the loan process and make it easier than ever for you.
Ready to buy? Contact us today and let’s talk.