Renting vs. Buying

Not sure whether you should buy or rent?

Buying a home has always been one of the cornerstones of the American dream. However, people have long debated whether buying a home is a better financial decision than renting. Arguments can be made for either side but the decision to buy or rent is heavily dependent on the potential buyers individual circumstances. There are several factors that you may want to consider before making the desicion to buy or rent. 

The first and most important factor is whether or not you will qualify to buy. Things such as your income, employment, credit score, and debt to income ratio will help determine if you are able to qualify for a loan. In order to know whether or not you will qualify, you will want to speak with a lender that can go into depth with you about your individual situation. If you don't qualify for a home loan, you will have to rent unil you can get to a point where you will qualify. However, if you do qualify and plan on living in the home you purchase for a while, it can be a great way to build equity over time. 

Another important factor is how long you are planning on staying. If you are looking for a temporary living situation or are planning on leaving the area anytime in the near future, then buying may not be the best decision for you. There are costs associated with buying a house that when spread out over the course of the loan may not seem like much, but if you turn around and sell in a year or two these costs can be cumbersome. Aside from asorbing the closing costs associated with buying and selling, if you live in the home for less than 2 years, you will have to pay capital gains taxes on any income generated from the sale. On the other hand, if you plan on staying in that home for a while, as long as you have lived in it as a primary residence for 2 of the last 5 years, you can avoid paying capital gains taxes.

There are many costs associated with home ownership that go beyond the principle and interest of your mortgage. You will have to factor in the real estate taxes that you will have to pay on the home, although you can write off most of this when filing your taxes. If you aren't able put down 20% and are not using a VA loan, you may have mortgage insurance that could be added to your monthly payment. If your home is in a home owners association or condo association you will have to pay dues. In addition to these monthly payments, you should also factor in mantenance and repair costs. This can include things such as repairing or replacing the roof/exterior, major systems, and appliances. Any updates you plan on doing will also come out of your pocket. Although this may seem like a lot, owning a home gives you the freedom to make whatever changes and updates you want to the property.

With all of this being said, there are advantages to buying a home as opposed to renting. If you plan on being in the area for a while, are qualified, and want the flexibility to do as you please with your home then buying might be the right decsion for you. Let us help you find out what is best for your individual situation. Whether it is buying or renting, Kathy Colville and Associates will help you make the right decision.