Together with my husband, I have been a homeowner for 20 years next month. And yes, we have lived in the same house for all of those 20 years–a relatively modest 3-bedroom Cape Cod in one of the best neighborhoods in our city.
Although we made the decision being discussed in this article many years ago, there have been many times over the years when I have revisited the decision and thought about what it would be like to rent rather than buy. There are many factors to consider when making the decision about whether to rent or buy your home, and it may not be as cut-and-dried as you might think.
Is Buying a Home Possible for You?
When thinking “should I rent or buy a house,” it’s important to first consider whether you are actually prepared to buy a house. There are some requirements for buying that don’t exist with renting. First, you will need to have more money saved to buy a house than you will to rent. Some kind of down payment is almost always required.
Experts generally advise a 20 percent down payment, which for a $150,000 house, would be $30,000, for instance. You can put down less than 20 percent, however. My husband and I put down only three percent when we bought our home, but we paid more in fees (PMI of about $150 a month) in order to do so.
You also need to have a decent credit score in order to qualify for a mortgage on a home. Generally, if your credit score is 700 or more, you can qualify for a mortgage with a better interest rate. If your score is in the 600s, you may still qualify for a mortgage, but may end up paying a higher interest rate, which will impact your monthly payment.
Experts advise spending no more than 25 to 30 percent of your monthly income on housing costs, but these can be more than just the mortgage and property taxes, which vary by area. This general guideline should tell you the price of the house you can afford to buy so you can investigate whether a house in that price range would meet your needs in your area.
Ways to Get Cheaper Housing
Whether you rent or buy, the cost of housing varies by the location of the home. If you choose to live in a rural area or in certain urban neighborhoods, you can save hundreds of dollars on your rent or qualify for programs that can get you a significant discount on your mortgage. The USDA offers several programs that help qualified homeowners get housing assistance and guaranteed loans in rural areas to encourage people to move there.
An FHA or VA loan can cut the interest on your loan because it is partially subsidized by the federal government, and those who qualify for these loans should take advantage of them to save money on their housing.
Finally, choosing to buy a “fixer-upper” house, one that needs work done to it to maximize its value, can allow you to purchase a home for tens of thousands of dollars less than the usual fair market value. You will have a lower mortgage payment if you buy a fixer-upper, but you will have to put at least some money into fixing the home’s issues. If you or your spouse has the skills to fix the issues without involving professionals, you may still be able to save a lot of money by buying a fixer-upper home.
Advantages of Buying a House
There are some definite advantages to buying a house rather than renting, if you do have enough savings and can qualify for a mortgage. For one thing, purchasing a home means that you control where you live and for how long. When you rent, it is often a year-by-year lease, and your landlord can tell you that you have to move when the year is up.
In our years of living in our home, we have seen two other major advantages to being homeowners. Over a period of 20 years, the value of our home has increased dramatically and created a substantial amount of equity–the home is worth a lot more than we owe on the mortgage. When we needed cash to help my husband start a side business, we were able to refinance the home and take out some of the equity to fund the business’s startup costs.
The other advantage enjoyed as homeowners is the ability to deduct our mortgage interest (and PMI when we paid it) from our taxes, which has saved us thousands of dollars over the years. This benefit only applies if you itemize your taxes, and recent tax changes have increased the standard deduction to $24,000, so unless your mortgage is a large one, you may not get as much of tax advantage from having a mortgage as we did for so many years.
Responsibilities of Owning a Home
You may be well-equipped financially to purchase a home, but it’s also important to consider whether you are prepared to meet the requirements involved.
When you rent an apartment, the landlord is responsible for keeping it in generally good repair, as well as taking care of the land. Unless you as a tenant are destructive, you aren’t responsible for these costs or for the upkeep of the property, other than keeping the area relatively clean.
One of the major drawbacks of owning a home, in my experience, has been the costs of fixing all the things that naturally break over time. In the first few years of owning our home, we replaced the stove, refrigerator, water heater, and dryer. Over 20 years, we have replaced almost every major appliance or system except our furnace, which was a top-quality model and is expected to last indefinitely. We also repainted several times, replaced the roof after trying to repair it first, upgraded the electrical system, and paid a plumber to clean out the main water pipe to the street when it became backed up.
Most calculators for the cost of buying vs. renting do not consider the thousands of dollars every year that it usually costs to keep everything running in the house and other upkeep like repainting, refinishing hardwood floors, and periodic renovations. If you don’t consider these costs as part of buying a house, you will be unprepared for them and have an unrealistic view of home ownership.
The other major responsibility of owning a home is the upkeep of the land, including landscaping, lawn mowing, and snow removal. This typically takes at least a few hours each week, which can be quite daunting when you are working long hours or taking care of small children.
You can hire someone to mow the lawn and handle the landscaping if you can afford it but this is yet another cost of owning a home that should be considered when determining the financial advantages of owning or renting.
If you are handy and want to spend the time doing yard work and maintenance around your house, you can cut down on the costs associated with upkeep and are probably a good candidate for home ownership. If not, however, you might want to consider renting a home instead.
Advantages of Renting Your Home
After seeing the responsibilities you take on when you buy a house, renting may be starting to look pretty good. You aren’t responsible when the dishwasher breaks unless you took a baseball bat to it, you don’t have to mow the lawn or pull weeds, and you don’t have to pay several thousand dollars in local property taxes every year because those are the landlord’s responsibility, although the costs sometimes get passed along in the monthly rent anyway.
Renting a home or apartment is ideal for people who don’t know when they might need to move out of the area, are older and can’t do yard work, and anyone who doesn’t want to worry about the costs or time involved in a property’s upkeep.
In many areas, rent seems prohibitively high. It would cost us more to rent a similar-sized home than our current mortgage payment, which seems to make renting a disadvantage. But when you take into account the costs of upkeep, it could very well cost less to rent a home than to pay the mortgage, taxes, and thousands of dollars every year in various kinds of upkeep.
Is It Better to Rent or Buy a House?
The bottom line is, no one can make that decision for you. After carefully considering whether you can really afford all the costs of owning a home and whether you want all of the responsibilities, as well as the level of control you want or need over your living situation, a decision will emerge.
If you’re just not sure which way is best for you, it’s probably best to rent with a relatively short lease period, like three to six months, until you can get a better handle on the decision. While you can sell a home any time after you have bought it, it’s not usually a quick or easy process and you will have to pay a percentage, usually six percent, to the realtor, which can mean that you lose money on the sale if the house hasn’t appreciated in value.
Despite the issues with home ownership that I have described here, my husband and I have had what we consider a generally positive experience and would not have changed anything about where we have lived for the last 20 years. Being happy with your decision is the important thing, and will make any challenges worthwhile.