However, is it really wiser to buy than to rent a home? For many, buying a home is the American Dream, but if you’re not personally & financially ready, it can be a nightmare.
Let’s evaluate a few pros and cons of each scenario, and let you decide for yourself whether it really is the “Time to Buy” for you.
Contrary to popular belief, it is possible to rent an apartment or house for much less than the cost of buying it – especially if you live in a larger city. And if you want to be right downtown, renting is almost always more affordable than owning a condo.
As well, apartment renters usually do not have to come up with the thousands of dollars in down payments, closing costs and fees for things such as building inspections, legal counsel, land transfer taxes and insurance.
And this doesn’t even factor in the cost of borrowing – in the first five years of ownership, most mortgage payments are applied only to the interest, not the capital. This is money that you won’t get back when you sell your home (and you’ll still have all the hassles and extra costs of putting your house on the market).
Getting a big tax break is supposed to be one of the greatest advantages of owning a home – but you can’t always rely on getting this break. If your annual mortgage interest payment, plus any other deductions you are entitled to, isn’t greater than your standard tax deductions, you will not receive any tax benefit from owning a house.
Renting provides an enormous amount of flexibility. You can pack up and leave immediately at the end of your lease (which can be monthly or yearly, whatever best suits your lifestyle) – there’s no waiting to sell and no agonizing about the housing market before you move. For many people, the freedom to live where you want and when you want is a huge benefit that simply cannot be overlooked. Also, no need to worry about yard work, snow plowing or other added duties associated with homeownership!
For homeowners, the stakes are enormously high should their finances crumble. When they can’t pay the mortgage, the lender has great leverage – the house and all the equity invested in it could be in jeopardy. That’s not to say there aren’t consequences if a tenant can’t pay the rent – but the financial devastation that comes with losing your home is enormous. Also, there are social service programs that are run numerous levels of government to help people in need pay their rent and avoid eviction. Are the banks as lenient or supportive when it comes time to pay the mortgage?
Continue Renting If…
You don’t like fixing things. When you rent, you get a built in maintenance plan!
You don’t plan on staying in a home for at least 5 years. Houses increase in value, over time. In the current economy, it’s going to take a few years before most areas appreciate in value again.
You don’t have enough cash for a down payment or at least 3 months worth of mortgage payments saved up. You want to give yourself the best possible chance to succeed in homeownership.
You’re not sure your job is secure.
Your credit is damaged. You’re better off taking six months to a year to improve your credit before buying.
You’re not ready to commit to a city or neighborhood.
You want to live in an area that is more expensive than you can afford to buy right now.
Ultimately, making the decision to either rent an apartment or buy a home involves much more than simply comparing rental rates, mortgage payments, lease lengths and tax breaks. It’s a combination of all of the personal circumstances happening in your life – both now and several years down the road.