One of the biggest decisions that anyone can make in their life is to purchase a home. Some homebuyers may wonder if their decision to purchase a home is the right decision for them since the average person changes their mind regarding their decision every five to seven years. While taking this information into consideration, many people do wonder if purchasing a home is the best option for them. However, there are many advantages to purchasing a home. Yet there are disadvantages, which means renting may be the better option for them. The best way to know whether buying or renting is the better situation; the individual must look at their situation in order to make the right decision.
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The following are some of advantages of renting that the consumer may want to consider:
Despite the advantages or renting, there are some things that renters should take into consideration before choosing to rent.
The renter should know what the lease can and cannot do before signing. Local laws do not always cover the conditions covered by leasing and tenancy agreements. The renter’s lease is legally binding when it comes to the living arrangements and the renter’s rights.
The renter should know how to protect their security deposit. This can be done by doing a through walk-through prior to signing a lease. All pre-existing damage must be documented.
The renter should know about the renter’s insurance policy. Renter’s insurance protects the renter against damage and losses due to flooding, fires, robbery, and other adverse events.
The following are advantages of buying that one should consider:
Despite the various advantages, there are some things that buyers need to know and be aware of before choosing to purchase a home:
The buyer is responsible for more than the mortgage payment. There are also taxes, insurance, maintenance and repairs to be concerned with. There may also be dues from the Homeowner’s Association to consider.
The homeowner has less flexibility to move. After buying a home, there is not much flexibility when choosing a new job in another town.
The market and home prices fluctuate. The appreciation or depreciation of the property value depends on when the home was bought, whether during a boom period or a bust period. The property may not appreciate at the rate the homeowner anticipates, leaving the homeowner with no profit when planning to sell it.
There are two factors to consider in this equation: How much the homeowner expects the home to appreciate and how long the homeowner plans to stay. A homebuyer usually needs to stay in the home for at least three years to make up the costs. Staying for five years is a more preferable timeframe. However, the homeowner may need to stay longer to be ahead compared to renting, which depends on the part of the country one resides.
Affordability must be taken into consideration when deciding to buy or rent, despite the plans of a person to stay in a home for a long time. Many financial experts suggest that buyers keep their monthly residential payments at 33% or below their gross monthly income.
Here is a video from Salman Kahn on the economic considerations of renting versus buying, which highlights how important it is to run the numbers based on real world examples in the local real estate market. At some points in time it is cheap to buy in one part of the country and expensive to buy in another part of the country. In his example he uses an interest-only loan calculation as a baseline example to show how much of a normal initial mortgage payment goes toward covering interest on the note.
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