How I Settled the Renting vs Owning Debate For Myself

The renting vs buying a home debate is perhaps one of the most intense debates in personal finance. People want to know if it is a better financial decision to rent or buy a home. If you’re a renter wondering whether it’s time to buy a home, there’s a lot to consider. It’s not always an easy decision, so it is important to develop your own objective opinion and bear in mind that the rent vs buy question is entirely dependent on each person’s unique situation.

In 2020 when I decided to purchase my first house I had to look at both sides of the debate before making my decisions.

I had to examine the two opposing views surrounding the debate, according to

  • The ownership crowd who believes that owning a home is better than renting. The central argument here is that paying rent is throwing your money away. You’ll often hear arguments from this crowd like “paying rent is simply paying someone else’s mortgage.”
  • The renting crowd believes that renting a home is better than owning. The central argument here is that a house isn’t really an investment. You’ll often hear arguments from this crowd like, “a house costs you money, and therefore it should be treated like a liability rather than an asset.”

Below are some of the things I had to take into consideration before my purchase. Hopefully, my opinion of renting vs buying below will help you decide what you should do.

Renting vs Buying Pros and Cons

Clearly, there’s a lot to consider when making the decision to rent vs. buy. If you’re having a hard time weighing the pros and cons, below are way I broke it down to ensure that I was making the best decision base on the data I had available. I looked at the advantages and disadvantages of both:

Advantages of Buying a Home

  • Buying builds equity. Which is  the difference between what you owe on your mortgage and what your home is currently worth. If you owe $150,000 on your mortgage loan and your home is worth $200,000, you have $50,000 of equity in your home.
  • You have full control over home improvements and upgrades
  • There are some tax benefits to owning. i.e. Mortgage interest and property taxes may be tax deductible
  • Homes frequently increase in value over the life of a mortgage

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Disadvantages of Buying a Home

  • Requires upfront costs for down payment, closing fees, etc.
  • Swings in the economy can cause your home to lose value
  • You’re responsible for handling all the maintenance and repair cost
  • Utilities Are Your Responsibility. When you rent, sometimes the owner will cover certain utilities such as water, garbage collection, and sewer.

Advantages of Renting

  • Monthly housing costs are fixed and predictable and certain utilities may be included in the rent
  • No long-term commitment once the lease ends, which means you can pick up and move at the end of your lease.
  • You don’t have to spend money on the expenses associated with owning. The landlord pays for necessary repairs and maintenance
  • You don’t have to save up thousands of dollars for a down payment or closing costs

Disadvantages of Renting

  • Your rent money doesn’t go toward owning anything
  • You have limited control over how the property looks. A landlord has the final say on property modifications.
  • Rent could increase in the future
  • Your landlord could sell the property or decide to stop renting to you

Other Factors to Consider Before Purchasing a House

 1. Your  Financial Situation

Buying a home is a major financial commitment. Not only should you feel financially prepared, but your lender needs to agree. That means meeting some criteria. You maybe asked to put down a deposit, this off course depends on the mortgage program you select. Some loans require as little as 3 percent down. While a variety of factors determine which programs are available to you, a mortgage professional can help you sift through the details.

I also ensure that had money in savings. After buying a house, I wanted to make sure I was not “house poor”. I recommend that you have at least three to six months’ worth of expenses saved up. However, especially during a fragile economy, you might feel more comfortable with eight or even 12 months saved up, especially if you have a family to support or income that fluctuates.

2. Credit Score

Before making the decision to buy a house, I knew I had to improve and maintain a good credit score. The health of my credit was crucial in getting approved for a mortgage. Lenders want to see that you’ve been a responsible borrower in the past and have a strong track record of managing and paying back debt. One way they gauge this is by looking at your credit score.

Most conventional mortgage lenders require a credit score of at least 640 in order to qualify. If your score is higher you can expect to get a better interest rates and loan terms. If your score is in the 600s, your lender will likely charge you a higher interest rate and maybe qualify you for a smaller loan amount.

3. Preferred Location

Think about where you want to be five years from now. For me, I knew I wanted a yard where my kids would plan, nearby parks, and hiking trails.  If you’re not sure, or you hope to be a digital nomad bouncing from city to city, homeownership is probably not for you. n areas with high population densities, simply locating a place to rent can be a challenge. Buying a house requires a significant upfront investment, and you likely won’t break even on it for about five.

4. Closing Costs

Closing costs can be as high as a few thousand dollars, and must never be overlooked when applying for a mortgage loan. Some lenders allow you to finance the closing costs into the loan, but that will make your monthly payments larger and require you to pay interest for the closing costs.

Is Owning a Home Right for You?

Only you can know if homeownership is right for you. Make sure you spend time evaluating the pros and cons of renting vs buying a house and everything that comes with homeownership before you decide what’s right for you.