Renting vs. Buying a Home: Which Option is Right for You?
When you are looking to get your own place, it’s one of the biggest debates, which is better, renting or buying a home? Many will say that renting is just throwing your money away and that buying is a way to build equity. This may not always be true. Here are some factors that you should consider when taking your next big life step.
How Much Do You Have Saved?
Buying a home takes a lot of upfront cash. It is recommended that you put 20% down at the time of purchase. If that isn’t possible, then you will need private mortgage insurance, or PMI, which is an additional monthly cost. And don’t forget closing costs, which on average can be 5% of the purchase price. It would also be a good idea to have three to six months of take home pay set aside for any emergencies or necessary maintenance.
Can You Afford the Cost of Home Ownership?
There are many other costs associated with owning a home that may not initially be on your radar. Ongoing annual costs can include mortgage interest payments, homeowner’s insurance, flood insurance, property taxes, utilities, and potentially homeowner’s association fees. But you can write off the mortgage interest and property taxes, right? With the changes to the tax law last year, make sure this option still applies to you before factoring this into your savings.
Are You Willing to Do Some Work?
Are you willing to pick up a hammer and do some repairs around your house? Or do you prefer to let others take care of it? When it comes to owning a home, you are responsible for the upkeep and maintenance to your home, including forking out the money to do so. If you are renting, that responsibility lies with the landlord.
Do You Plan to Stay in the Area?
Are you a person who likes to pick a place and stay there for a long period of time? Then owning a home may be the right move. It’s recommended that you stay in your home for at least five years so that your home’s value has the chance to increase to recoup the closings costs. If you’re someone who prefers flexibility or has a job that could require relocation, then renting might make more sense.
The decision to either buy or rent a home is ultimately dependent on your lifestyle and financial means. Just because the housing market is booming, doesn’t mean you should jump on board if you are not financially ready. Need to see hard numbers to help with your decision? Nerdwallet has a calculator to assist with just that. If your final decision is to purchase a home, let Pioneer help you complete your journey.
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