The Cost of Renting vs Owning
If you’re like most people, the first factor in this debate will be about costs. Renting a home may or may not include utilities. Here in Florida, most home rentals that we come across do not include utilities so electric, water, etc will be added costs on top of your monthly rental price. When you enter into a contract to rent a home, you are often subject to providing upfront costs to the landlord including first month’s rent, last month’s rent and a security deposit, which is generally equal to one month’s rent. If you have pets, that can be an additional deposit. For the sake of easy math, let’s say the average rent for a 3 bedroom, 2 bath home is $1,500 per month. Most likely you will need to bring $4,500 to the table before move-in. In many cases, landlords may increase the rent over time or even annually to stay current with market trends.
In three years you will have spent $54,000 in rent. When you rent a home or an apartment you pay a landlord for your housing and you never see that money again. If you own a home and your mortgage payment is $1,500 a month, after three years you will have saved money and here’s why. Even though some of the mortgage payment is interest on the loan, your interest is deductible and your mortgage payments come back to you in the form of equity. When you have a fixed interest loan, your payment remains constant and you never have to worry about the landlord raising your rent. Also, if you’re buying a home in Florida you can take advantage of the Homestead exemption which can reduce your taxable value on your home as much as $50,000 saving you approximately $750 annually.
Repairs, Maintenance and Creative Control
Landlords are usually responsible for maintenance to a rental home so if your roof leaks, it’s time to call the landlord for repair. If you have a responsive landlord, he/she should take care of any repairs fairly quickly. Not having to be responsible if the roof leaks or an appliance breaks is a nice thing but is that convenience worth the money you’re paying? A closer look at buying vs renting reveals the benefits of buying a home.
Many people rent because of maintenance issues and the knowledge that a landlord is responsible for repairs. When you buy a new home your warranty covers any necessary repairs. Owning a new home gives you the most energy efficient features lowering utility costs.
Renting vs buying a home has other implications as well. When you buy a home you can make it your own. You may want to knock down a wall or paint your kitchen cabinets to better suit your personal taste. When you own your home you have the creative freedom to do whatever you’d like.
The rent or buy debate extends to a sense of community and pride of ownership. You take better care of something you own as do others who own in your neighborhood. You put down roots and enjoy a sense of community that is difficult to come by when you’re renting. You make memories in your own home – ones that last through the years as your family grows.
How much house can I afford?
If you’ve checked with the mortgage lenders, you’ll find that a down payment between 3.5% – 20% is required when buying a home. If your down payment is under 20% you will have private mortgage insurance, or PMI, added into your monthly mortgage. This is just an insurance that provides protection to the lender. The good news is, once you’ve satisfied 20% of your home’s loan-to-value ratio, you can contact your lender to remove PMI from your mortgage payment, thereby reducing your monthly payment.
In addition to the down payment, you’ll also pay closing costs, which averages between 2% – 5% percent of the home’s final sales price. For an approximate monthly payment which will include principal, interest, property taxes, homeowners insurance and, homeowners association dues, if any, check out a mortgage calculator or contact your lender. Also, there are housing affordability calculators to help determine how much house you can afford based on your current income and monthly debt payments.
Once the home sale is finished and you’re happily living in your new home, financial responsibility will also include utilities, maintenance and repairs. But remember, with a new home, a warranty is a valuable resource!
Still deciding on whether to rent or own?
Think about your financial situation and your long term plans to determine if buying or renting is the best solution. You may want to ask yourself:
- How much home can I afford? (Contacting a mortgage lender and requesting a pre-qualification is easy and very helpful. This way, you know how much home you can afford given your income and debt so you know whether you should start looking in a certain price range or hold off to fix credit issues or save money.)
- How much savings do I currently have? (Whether you are renting or owning, start saving money for the expense of a new rental’s upfront costs or for a down payment and closing costs if you want to own.)
- Do I want to live in this home for a couple years? Am I happiest with being stable or do I prefer the ability to move at any time? (If you’re in it for two years or more, a home may be a wise choice).
- Am I OK with the responsibility of maintaining a home? (With renting, a landlord is there to pick up the expense of repairs. If you buy a resale home, you will be responsible for repairs however a new home generally comes with a warranty if issues arise).
- Do I want the creative freedom to decorate and remodel to suit my lifestyle and preference or do I not mind keeping someone else’s home as is?
When you consider financial implications, pride of ownership, sense of community and the freedom to customize your home to your liking, buying a home may outweigh renting. However you also want to consider whether flexibility and a maintenance-free lifestyle is what you desire and opt for a rental.