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Rent Versus Buy Home

Renting can be a very predictable expense. You know what your costs are upfront and can plan accordingly. On the other hand, if you enjoy a lavish lifestyle, you may find renting to be more expensive than owning a home, even if there are repairs and regular maintenance you have to make with purchasing real estate.

rent versus buy home

Buying a home can be a very good investment. You may be able to build equity. But as with any investment, just how well your investment performs depends on a number of factors. When it comes to real estate, factors like location, the economy, maintenance, and environmental concerns can affect the overall value. And keep in mind, that it's never static, so things can change.

Once you locate a home, make an offer, and that offer is accepted, you must come up with a down payment, closing costs, and insurance, for starters. After that, in addition to those monthly payments, other expenses including property taxes, HOA fees, and enough savings to cover emergencies like a flooded basement come into play.

Renting and owning are different in almost every aspect of what it means to obtain a place to live. The responsibilities of renters are not the same as owners. The costs are not the same nor are the rewards. Lifestyles, goals, and needs often differ as well.

These differences are sometimes a reflection of the choice to rent or buy and sometimes a reflection of the reason that choice is made. Either way, the more you know about these differences, the easier your choice will be.

Homeowner. You make a mortgage payment which is a combination of interest and principal on the loan you take out to purchase your home. In most cases, your mortgage payment is set for 30 years and does not change. After 30 years, your loan is paid off and you own the property outright. Besides a conventional 30-year-fixed-rate mortgage, you may want to consider an adjustable rate mortgage or one of several other types with different terms and features.

Homeowner. You bear the cost of maintaining the home you own. This could include anything from replacing a roof, buying a new water heater, and repairing a damaged driveway. If something breaks down, as the homeowner you have to fix it.

Homeowner. Homeowners insurance has to cover the dwelling including damages caused by water or fire and all of your personal belongings. It must also provide liability coverage. Because homeowners insurance has to provide so much more coverage than renters insurance it can cost up to eight times the cost a renters policy.

Renter. Renters insurance is less expensive than homeowners insurance because it only covers the cost of your personal property, not the building where you reside. It also includes personal liability insurance in the event someone is injured on the property and it is your fault.

Homeowner. If you like the area where you live, are generally ready to settle for at least three to five years, put down roots, and keep the same job, being a homeowner may be a good fit for you.

Renter. Renters trade the peace of mind ownership brings with the flexibility to easily move to another location. As long as that flexibility is important to you, renting may be a better choice, at least for now.

Homeowner. To buy a home, you need to employ a lot of financial leverage. Your 20% down payment and good credit score become the leverage that gets you a loan for a property worth many times the amount you shell out. To have that leverage your financial house needs to be in order. You need that down payment, good credit, solid employment, and the financial wherewithal to make house payments on time for the foreseeable future.

The table shows both your initial and first-year costs as a buyer or renter. Not counting your down payment and closing costs, they are similar. To recover the down payment and closing costs, you need to hold the house long enough to sell it for enough profit to pay off the existing loan plus costs and fees associated with selling.

The table does not consider losses or gains you might realize by, for example, renting instead of buying and investing the $72,000 down payment and closing costs in the stock market. Some retirees do that when they sell their home in order to downsize.

Another important factor is location. Where you are right now may not be where you want to be in 3 to 5 years or more. If your time horizon is more than 5 years away, you may be safe buying since chances are it will be less expensive than renting over the same period.

The decision to rent or buy is far from a simple matter of which is less expensive. Everything discussed here plays into your final decision which can range from buy now to wait and rent to rent for life.

Before making a hasty move, review the details and make the financial decision that is right for you. While owning a home may be beneficial for some, many people find renting to be a better option. There are examples that show renting can save consumers money. However, the decision to rent versus buying a home is a personal decision.

If you decide to buy a home, your income, savings, and monthly expenses play an important role in determining how large a mortgage you can afford. To help determine the amount you can afford, you can use this mortgage calculator (opens new window) (You will be leaving and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) from Freddie Mac, or contact a HUD-approved housing counseling agency in your area (opens new window) (You will be leaving and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) . HUD approved counselors can help you create a home buying budget at no charge.

Under current U.S. tax rules, taxpayers who itemize their expenses can deduct the interest paid on mortgage debt up to a certain limit. New legislation reduced the amount through the year 2026; however, the change affects only those living in expensive housing markets. With a tax benefit for homeowners, the savings could be significant. It is important to know all of the costs impacting your decision to buy.

If you purchase a home in a sub-division or planned community, you may be obligated to pay a Home Owners Association (HOA) or Property Owners Association (POA) fee. The same may be true if you buy a condo or townhouse. This fee may cover things like trash and snow removal, mowing and maintenance of common grounds and upkeep of shared facilities like a clubhouse, playground, tennis courts and swimming pool. HOA fees vary greatly depending on the community, so they need to be considered in your decision. If you live in a state with high property taxes, you will also need to factor in this additional cost each year.

The chart below shows a cost comparison for a renter and a homeowner over a seven-year period. The renter starts out paying $800 per month with annual increases of 5%. The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000. After 6 years, the homeowner's payment is lower than the renter's monthly payment. With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years.

Your rental company takes part of your rent payment to cover certain housing expenses. When you decide to purchase a home, you accept responsibility for paying for those expenses. They are additional costs to your monthly mortgage payment and should be included in your budget estimates. Typical expenses include: property taxes and special assessments; home/hazard insurance; utilities; maintenance; HOA or condo fee(s); membership fees (such as for recreational facilities), and other services.

Home Buying Checklist (opens new window) (You will be leaving and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) - Take this list with you when comparing homes.Home Ownership: Finding the Right Home, Buying a Home and Owning a Home (NCUA) Fair Housing: Equal Opportunity for All (opens new window) (You will be leaving and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) (HUD booklet) Avoid Predatory Mortgage Lending (opens new window) (You will be leaving and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) (Center for Responsible Lending)

To learn more about buying a home, visit:Buying a Home (opens new window) (You will be leaving and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) (U.S. Department of Housing and Urban Development)Know Your Options (opens new window) (You will be leaving and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) (Federal National Mortgage Association, or Fannie Mae)

In this ever-changing housing market, the decision to rent or to buy can be as confusing as ever. Remote work, climbing mortgage rates, rent increases and changing lifestyles are all now factors to be considered when making this critical decision.

There are obvious financial benefits to owning your home: You can write off a portion of your mortgage payment as a tax deduction. Consider the tax laws in the city or state where you want to purchase. Changing tax laws, such as those in New York City, now limit the amount you can write off and may impact your decision.

Rising mortgage rates will have an obvious impact on your ability to buy, as well as the required amount you must put down upon purchase. However, other financial considerations for a home purchase include property maintenance or upkeep costs.

Your overall outlay goes beyond your mortgage payments and local or state taxes. When owning a home, you are responsible for everything. Is there a large lawn to be maintained? Is there a pool that needs regular servicing? Do you need to pay for garbage removal? Will you need to pay for snow or leaf removal? Will the roof need replacement in the coming years? 041b061a72


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