Buying a home was once a lifetime achievement for many people in the world. Generations before us would pride themselves on the acquisition of the American Dream- nuclear family, white picket fence, ownership of land, and a house.
Buying a house certainly has its advantages, but it is financially feasible in today’s day and age?
Housing markets and home prices have grown exponentially over the past few years, especially in Boise, ID. With the pandemic causing a mass exodus, people are flocking to Idaho in search of a new dwelling- and who can blame them?
The problem is, houses are quickly beingswept up leaving even single-family homes almost impossible to purchase with the average Idahoan’s financial situation. People who grew up here are struggling to afford their first home purchase, but is this actually a problem?
Is buying a home better than renting?
To Rent vs To Buy
Deciding on whether to rent or buy a home is an overwhelming decision. On the one hand, your monthly cost can be comparable in price when looking at a short-term buy calculator. If your mortgage rates and monthly rent payment is similar, why commit to buying a property?
On the other hand, you need to find out if it makes fiscal sense to continuously make rent payments towards a property you’ll never own.
Your financial health is first and foremost the number one factor you need to consider during the decision-making process of whether to rent or buy. You do not want to jump into a homeowner’s payment plan if you can’t afford the costs that come with it.
Money is not the only important element to review when deciding whether to rent vs buy. Other factors of major importance include lifestyle and life goals.
Life without a Mortgage
2022 brought an upsurge of young people looking for a simpler way of life. Mortgage payments are no longer a topic of stress amongst young families. In fact, social media income has allowed people to work remotely and live full time in their RVs.
The young adults looking for a roof over their heads are not worried about taxable income or mortgage insurance- making renting vs buying a more appealing decision.
Buying vs Renting Costs
Oftentimes, people find that renting versus buying makes more sense after considering the upfront costs of purchasing. Throughout the home buying process, the home’s purchase price, down payment, mortgage payment, and closing costs are just the tip of the iceberg.
Other costs include HOA fees, property tax, homeowners insurance, and maintenance costs.
That all adds up!
According to financial guru Dave Ramsey, your home monthly payments should be 25% or less of your monthly income. If your personal finances do not reflect the ability to do this, then it may be in your best interest to rent vs buy.
When you rent a home or apartment, the upfront costs are exponentially less. With a simple rent agreement, the security deposit and monthly payment amount are agreed upon. There are no closing costs, mortgage interest rates, or property tax to worry about.
Build Wealth: Buying Vs Renting
Owning a home can actually benefit your financial situation in the long run. For example, should you choose to buy a home, each and every monthly payment will build equity in your property.
Instead of paying a landlord your rental payments, you will be paying into your home. In this case, buying a home is a good investment in your future.
There are other financial advantages to homeownership. If you decide to sell your home and make a profit off of the sale, that is not considered taxable income. Other tax benefits include tax deductions on mortgage interest and tax savings.
Depending on your goals, it may make more financial sense to buy a home vs rent.
Renters do not receive these tax benefits to help build equity or investment wealth. They do, however, have the benefit of building wealth through other means. Not only do they save by avoiding all the additional costs of owning a home, but they also save on most other housing needs- maintenance and repair for example.
Maintenance And Repair
After a few years, your home will require repair and maintenance in order for it to retain its value. Depending on the severity of repairs needed, the obligation of maintenance costs can make or break your decision in home buying.
This is why home maintenance and inspections are required before determining the home value. This allows purchasers to have an honest evaluation of their expenditure and to know what repairs and maintenance will potentially cost.
With rental properties, these expenses usually fall under the responsibilities of the landlord or property management company. Sometimes these are included in your monthly costs. If the roof starts leaking or an appliance stops functioning, for instance, all you will need to do is call the landlord and it will be fixed.
Homeowners on the other hand shoulder renovation, maintenance, and repair costs. Depending on the extent of repair, it can be quite expensive.
Flexibility For Where One Wants To Live
Unlike homeowners who are restricted to areas where the housing market is through the roof, renting means that you can live virtually anywhere you want with zero commitment to a single property (at least, commitment past your rental agreement) at less of a cost.
Homes in well-developed cities may be out of reach for people who wish to buy, but can definitely be affordable for renters. Although rent tends to be high in these areas, it is quite easy to find monthly rent that is less expensive than buying a home. If the need arises that one has to move, renters move more swiftly than homeowners.
Real Estate Taxes
This is among the biggest benefits renters enjoy versus having to buy a home. If you are renting property, you are not required to pay property taxes. Taxes vary between states and are usually a hefty burden that can accumulate to thousands of dollars per year.
Real estate taxes are complex but one fact remains true, the higher the value of your home, the higher the tax. Recent years have seen larger and more expensive houses being built. This implies tax burdens are going to be quite tough.
Flexiblity
Commitment to one dwelling unit can be overwhelming at times. Renting gives people an option to downsize which partially cuts their monthly expenses. This is especially important to those who have inconsistent income or retirees who wish for smaller alternatives that suit their budgets.
On the other hand, selling a home is not easy because of the immense amount of paperwork and money involved. This makes it hard to break free of expensive houses by owners even when the living cost is beyond their capabilities.
Is Renting Less Expensive
At the end of the day, if owning a home is part of your life plans, it’s best to set aside the money needed to purchase and budget the costs of a lifelong investment. If commitment to a certain state or area is not in the foreseeable future, finding a place to rent may be best for you.
Financial experts argue whether it’s more expensive to rent rather than buy a house. Renting is quite cheaper if you are not looking for a long-term commitment and do not have the immediate fund. Buying a home should be left to committed buyers who wish to invest in their future and are okay with committing in the long run (at least for a while.)
Conclusion
Homeownership has been a cherished achievement for decades and may prove to be a lifetime decision. However, this does not work for everyone. If you are looking to navigate around the hustles that come with homeownership, like property taxes and upkeep cost, then renting is perfectly suited for you.
