Renting vs Buying a Home
More and more millennials are holding off on purchasing a home until they are older. According to the U.S. Census Bureau, roughly 1 in 3 millennials under the age of 35 own a home, which is around 9% lower than previous generations. Millennials have a plethora of reasons for this: lower incomes, higher housing costs, and rising student debt. Because of this, many are renting homes instead of buying. In this article, we’ll cover the benefits and drawbacks of each option, and help you to decide which option may be best for you.
Renting a Home:
Renting a home can be a more affordable option for many people. Paying a single rate and not having to worry about any maintenance expenses is one of the major benefits of renting. Even better, finding a flexible landlord can make your stay more desirable.
Benefit 1: Fixed cost housing
Renting a home has a single fixed rate price that is detailed in your leasing agreement. You are not responsible for any maintenance or repairs that come with the home nor the taxes or insurance that comes with a mortgage. This is one of the major benefits of renting a home. While oftentimes these costs are baked into the rental price, it can still be cheaper than owning a home, without all of the worries.
Benefit 2: No long term agreement
Leases can range anywhere from 6 months to 24 months, with 12 months being the average length of a rental lease. This gives you the flexibility to move if needed. Thinking about moving in the next few years? Renting may be for you. If your income fluctuates, renting gives you the option to move after 12 months depending on your income.
Benefit 3: No down payment or closing costs
Aren’t ready to put down $5,000+ for a down payment and closing costs? Renting can offer much lower entry costs. Usually, you’ll have to pay a security deposit plus the first months rent before moving in, which is significantly less expensive than a down payment and closing costs.
Benefit 4: No PMI
Private mortgage insurance (PMI) can be costly for homeowners with low down payments.
When to rent a home or apartment:
- If you plan to move in the next few years
- If you do not have the capital to pay for home maintenance or expenses
- If you do not have the capital to afford a down payment and closing costs
- If you do not want the responsibility of maintaining a home
- If you have an unstable income
Buying a Home:
Benefit 1: Build home equity
One of the main reasons people choose to purchase a home is to build equity in their home to eventually own it. Each time you make a mortgage payment a certain amount goes toward the principal balance. This is called home equity. As the number of payments you make increases, so does the percentage of your payment towards the principal balance.
Benefit 2: Tax breaks
If you have a mortgage on your home, you can deduct any mortgage interest, up to a certain point. The amount is based on a multitude of factors but is very advantageous for many.
Benefit 3: Home flexibility
When your home is yours, you can do whatever you want to it. Want to take out an unnecessary wall? Go right ahead. Want to revamp your landscaping or put in a pull? It’s all you! Home renovations can increase the value of your home, building even more equity when you go to sell.
When to purchase a home:
- If you have enough capital for a down payment and closing costs
- If you plan to stay at the home for more than a few years
- If you have a stable income
Buying a home can be a nerve-racking process but with the right realtor and mortgage company, it can put your mind at ease. Ultimately, whether you chose to purchase or rent a home you can still enjoy the benefits that come with it. Looking to purchase a home but need help saving? Check out our article on how to lower your monthly expenses here!