Finding Your Home: Do You Buy, or Do You Rent?
Written by Dongmiao Cui   


Choosing between buying and renting a home requires careful consideration. Factors to consider could be financial or personal, and sometimes get quite complicated. To help you collect your thoughts, here is a checklist of the key factors that may greatly affect your decision. After qualitatively comparing your buying and renting pros and cons, you can take further steps by utilizing online buying-versus-renting calculators.
Rule of Threes


3 Good Reasons to Buy a Home
  1. Home ownership carries pride, a sense of stability and security. It is in many people’s life goals.
     
  2. Buying a home can make a good investment. When the real estate market improves, your property appreciates in value. Therefore many people hedge against inflation with their home.
     
  3. There are a variety of tax deductions for items such as property tax and mortgage interest that are made available to qualified homeowners.

3 Good Reasons to Not Buy a Home
  1. You only want to live there for a short amount of time – Between the steep costs to home ownership, as well as the time and trouble of filing all of the paperwork and selling the home when you leave, if you do not plan to stay in a house for at least 3 years, renting may be a better choice.
     
  2. The financial costs of owning a home is high – Costs include the purchase, mortgage payments, taxes, maintenance costs and utility expenses, etc.  You might not be able to break even or see financial benefits until 5 or 10 years after your purchase.
     
  3. You don’t have enough savings stashed away – Aside from saving for the down payment and monthly payments, it is also encouraged to have some additional savings. Experts suggest that smart homebuyers should be able to keep at least 2 mortgage payments in savings, set aside for costly maintenances and repairs.

3 Reasons to Rent
  1. You do not need to worry about financial risks (except for your own rent) and you are relieved from maintaining the condition of the property. If the housing market crashes again, you will not be affected.
     
  2. If you move often, renting may provide apparent flexibility.
     
  3. You may be able to live in a nicer or larger home than you could otherwise afford to buy at the current moment.

Note: Your credit score can be another big concern for both renting and buying. A landlord is effectively “lending” you a piece of property, and will want to know that you are likely to pay your rent. With a mortgage, it will affect your interest rate. Higher scores make it easier for you to qualify for mortgage loans and help you finance at lower interest costs. For example, if your score is higher than 720, you will be likely to obtain a 6% or so for 30-year fixed rate loan. However if your score falls 100 points lower, your rate will hike to 7.8%.


Comparing the Two, Side by Side

All that being said, there is no clear-cut when it comes to decide whether to rent or to buy a home. You do not want to leave behind any important factor when you start to evaluate your options. Doing your research is always a good idea. CNN Money and Yahoo Finance both give a good debate. Financial Calculators are also helpful in personalizing the debate. To get you started, the following table covers most of the financial items that make up your expenses. In terms of buying, you can subtract your projected financial benefits (such as appreciation in the value of your house) from the estimated cost, and compare it with the cost of renting.

Buying Renting
  1. (Planned) Length of Ownership and Residence
  2. Down Payment
  3. Mortgage Principal
  4. Mortgage Interest (total)
  5. Property Taxes
  6. Utilities
  7. Maintenance
  8. Home Insurance
If you consider possible sales, additionally:
  1. Closing Costs
  2. Remaining Principal
  3. Tax
  4. Proceeds from Sale
  1. (Planned) Length of Renting
  2. Rent Deposit
  3. Monthly Rent
  4. Renter’s Insurance (if applicable)
  5. Return of Rent Deposit Upon Leaving
 
 
Last Updated on Wednesday, 22 December 2010 05:12