For the longest time the advice of nearly everyone, from your grandmother to your financial adviser is to BUY your home and NEVER to rent… after all, you’re just throwing your money away when renting, right?
Well, I’m beginning to differ on this and I’ll explain why in a moment.
Currently, you should realize that we’re renting the place we live. We did so because when we traveled out here for a few days last November to find a place to live we honestly had no idea where we were, from my wife’s office to shopping areas, good/bad places to live, and so on. In other words, it’s one thing to look at places on a map yet quite another to actually live there…. even visiting for a few days helps but isn’t the same.
Now that we’ve lived here in Washington for almost a year we have a much better idea of what’s where. As such, it made sense for us to rent at the time. It might still make sense if you’ll bear with me…
It seems to me that the advice to own a home is in part rooted in our past and in part rooted in the financial system. Once upon a time–when families purchased a home–they did so with the full intention of staying put for the rest of their lives. That was the mindset then and it made sense. If I’m going to live in a home until I die then I may as well have something to show for it!
These days people tend to move around quite a bit due things like job relocation or acquiring a new job but, equally important, are desires like simply wanting “something different” or as an upgrade (translated: larger home) and eventually a downgrade when the kids move out.
Loans Structures Lopsided for the Banks
For years (before the housing bubble) getting a home load was incredibly easy to do and it seemed everyone was winning, especially the banks. If you’re unaware, banks have a wonderful deal for themselves where they get to collect more of the interest due (as opposed to payment) on a home loan for roughly the first half of the loan and then your payments go more and more towards actually paying off the loan.
As such, you really don’t begin to pay off your home loan until the latter half of the loan. Just look up a mortgage rate calculator that includes a graph of loan versus interest payments and you’ll easily see the disparity. Certainly, banks have you by the “short hairs” and it’s all perfectly legal.
If you rent: You’re not trying to pay down a mortgage so you’re not getting the short end of the stick, if you will.
Closing Costs and Money Down
Moreover, there’s something to be said for the many thousands of dollars that a buyer often must pay during closing. Depending on the location and whether it’s a “buyers” or “sellers” market this could be a LOT more money. There’s also the agent fees to consider.
Beyond that, banks have tightened up their lending (at least the last time I looked) and often require buyers to put 10% or so of the loan down which, in many locations, amounts to tens of thousands of dollars. That could easily be money spent on plenty of other stuff, if you ask me. Besides, many people can’t put that type of money down.
If you rent: You don’t have ANY of these up-front costs.
Frequency of Moving Favors the Banks
Considering that the average American family moves every five years (according to Answers.com) it’s almost like you’re renting because you’re not really paying down much of the mortgage in that time. Granted, you do pay some but not that much in the first five years, at least.
If you rent: You can certainly move as often as you like AND not have to worry about things like closing costs from a seller’s perspective. 🙂
“Hidden” Costs if Your a Good Homeowner
We’ve both rented and attempted to own a home multiple times in our lives. One thing I’ve noticed is that we–like most upstanding people, I’d imagine–try to be good homeowners. A good homeowner is somebody who doesn’t allow the house to fall into disrepair and who even attempts to upgrade things.
Personally, I always wanted to make things better, from upgrading flooring (like tiling, replacing carpet, etc) to landscaping and more. I did it all and, sadly, I spent A LOT ultimately making the house better for somebody else! Looking back, I’m sure I averaged hundreds of dollars a month in various upgrades on our homes. Obviously, you don’t have to do this but I’d imagine many people do… at least everybody I know does.
There’s also something to be said for general repairs. Even DIY projects still have the expense of replacing whatever you need to fix.
If you rent: In most cases you’re not responsible for if/when things break (there can be exceptions) and, of course, you’re probably not going to be upgrading anything in a rental.
Downsides to Renting
I don’t want to make it sound like renting is a panacea either. Obviously, any smart homeowner is going to pass on their monthly costs to you, including paying down the mortgage/interest, taxes, insurance, and so on. They probably even add in a bit on the top to pay for repairs and maybe a bit more.
In addition, as a renter you are required to have renter’s insurance even though the homeowner already has homeowner’s insurance. The insurance typically isn’t very much but it’s still an added cost.
Moreover, you do have to ask permission to do things like painting a room or to make major changes, such as putting in a garden… even pet ownership may not be allowed. This is often a hindrance.
Which to Choose: Buying or Renting?
This is certainly only a question that YOU can answer for yourself. You have to ask yourself what kind of homeowner/renter are you. Are you the good kind that will want to make upgrades or not? How often do you move? Do you have the financial stability to put down tens of thousands of dollars during closing?
Honestly, I feel like I could have saved quite a bit of money if we’d simply rented instead, at least, until we found a place that we truly knew we wanted to settle down in. Thus far we’ve yet to find that place.
Regardless, this isn’t an easy decision to make but don’t just blindly jump into home ownership because that’s what you’re supposed to do. There are no doubt pros and cons to each choice.
What say you???
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