Renting vs Buying

Picking a place to live is one of the biggest decisions we make in our lives. It is a decision that is not to be taken lightly and must be planned out way in advance. One thing you need to decide is whether you want to buy or rent a home.

There are pros and cons of renting and buying a home; and you need to be able to decide logically what is going to work best for you. There are many different things you need to access at when picking a place to live, but the most important thing you need to access is yourself. You need to see where you are at in your life and make sure that your making a wise decision.The first thing you need to look at is your job. You need to make sure that you like your job and that you are going to be working in the same location for the next few years. You also need to make sure you have job security that way you will be able to keep up with your payments.

Another thing people need to consider is their personal lives. Your age and relationship status are major factors that need to be considered when deciding where you live. For example a single 26 year old probably doesn’t need to live in a big house with three bathrooms; but a married 26 year old with a baby on the way does.You also need to look at the housing market and decide whether or not it is a good time to purchase a home.

You don’t want to buy a house that is at its peak-selling price, because if you ever decide to move you will probably lose money in the sale. There are many different pros and cons when it comes to renting and buying a house. One pro to renting is that you have more flexibility. You will be able to move if need be, and breaking a renting lease is much easier than selling a house. Another pro of renting is that you will have more liquidity.

Renters don’t have to make a down payment, pay closing costs or deal with real estate taxes. By not having these costs renters are able to use their money to invest in the stock market, which sees an annual growth rate of over five percent. It also allows them to invest in IRA’s and mutual funds. Renting also gives you time to establish credit. “By creating a history of on-time rental payments, you can help yourself build good credit that you would need to qualify for a mortgage. ” (1)Renters also have fewer financial surprises.

For example if you’re renting a home and the roof begins to leak you don’t need to fix it your landlord does. It is typically the responsibility of the landlord to take care of common household maintenance and common wear and tear. Since renters don’t have to worry about these problems they are able to spend more of their time doing things they enjoy, it also allows them to save more money to put towards a down payment on a home of their own. With the pros of renting come certain cons as well. One downfall of renting is that you have no equity.

You are essentially paying your landlords mortgage in turn for a place to live.This is not considered an investment because it is temporary. Another con of renting is that renting prices may increase over time. Unless you’re in a rent-controlled apartment, you have no control over how much your rent increases each year.

Your landlord can raise your rent as much as he or she wants. If you don’t like it, you will be forced to move. You also have fewer freedoms when renting a property. Landlords may not allow you to have pets such as dogs or cats in the dueling.

They may also not allow you to paint the walls making it much hard to personalize you living space.Also if you are renting an apartment you will probably only have one or two parking spots making it much harder to have gatherings. There are many pros when it comes to buying a home. “Pride of ownership is the number one reason why people yearn to own their home.

” (2)This means that you can paint the walls any color, play your music as loud as you want, and have privacy. Owning a home also gives your family a sense of stability. Homeowners also get huge tax breaks; they are able to deduct their mortgage interests, and property taxes.Allowing them to significantly lower their taxable income freeing up more of their money, which can be used to pay bills. Homeowners are also able to take advantage of capital gains.

“The current capital gains tax law when selling your personal residence allows for an exclusion of up to $250,000 in profit if you are single and $500,000 if married. In order to be eligible you must have lived in your home for two of the last five years. ” (3)An example of this would be say you buy a home in 2002 for $300,000 and you sell it in 2008 for $500,000 you would have made a $200,000 profit that would not be taxed.Owning a home is the American dream for many first time buyers it is a moment they will never forget. They will become extremely attached to the residence over time; and will form memories that will carry with them throughout their lives. Even though buying a home is an amazing achievement there are some cons that come with it.

One con of buying a home is the high costs you will have to deal with. For example you will have to first make a down payment the recommended amount for a down payment is 20 percent of the selling price. If you only put down 10 percent you will probably need to pay private mortgage insurance also known as PMI.“PMI fees vary, depending on the size of the down payment and the loan, from around 0. 3 percent to 1. 15 percent of the original loan amount per year.

” (4) Other costs include mortgage payments and property taxes, which can increase over time. You will also have maintenance costs, insurance payments, and utility bills. Owning a home will also take up a lot of your time, you will constantly be doing chores such as mowing the lawn, and cleaning the house. You will also have less flexibility, if you want or need to move you will have to either sell your home or rent it out, this process could take months leaving you stuck.

Another risk of buying a home is the fact that your property’s worth could depreciate. If this occurs you will be stuck with a home that is worth less than you paid for it. However this can be avoided if the proper research is done, in the end it’s all about location, location, location. The final con of owning your own home is the possibility of a foreclosure. If for some reason you are unable to keep up with your payments you run the risk of having you lender foreclosing on your property.

This can result in the loss of your home an equity you have earned, and a loss of your good credit score.This is why it is so important to create a budget and stick to it; people always get into trouble once they begin to live outside their means. One method that is used to determine whether or not it is a good time to buy a home is the Price-to-rent ratio. “The price-to-rent ratio provides a comparison between owning and renting properties in certain cities.

The ratio uses the average listing price with average yearly rent on two-bedroom apartments, condos and townhomes”(5) It is computed by dividing the average listing price by the average yearly rent price.Trulia. com established thresholds for the ratios as follows 1 to15 is the best time to buy, 16 to 20 is typically a better time to rent, and any score over 21 is a great time to rent. Doing these calculations could really make a difference and could save you a lot of money in the long run. It’s also a great way for people to see what their best financial option is.

Figuring out whether to rent or buy is a very important decision, and it takes a lot of research to come to a wise decision. Everyone will have to make this decision at some point in his or her life and the circumstance will be different every time.The most important thing to keep in mind when making this decision is to not live outside your means. This paper has made me realize that this decision needs to be thought-out way in advance and reviewed many times. You need to make sure you have everything you need to be comfortable, but you also need to make sure your not wasting money. If you use the tools available and really take a deep look inside yourself you should be able to come up with the correct answer.

Personally If I were deciding right now I would chose to buy a home instead of rent one; but this is only because of how low the mortgage rates are at this point.