We bought our home last year in August. Till then we were renters. A lot of things in our finances have changed since then. On a positive side we are now better budgeters. We have a growing equity in our home. I can think of itemizing my tax return finally this year. On negative sides; We are hit with big insurance and property tax bills. We pay for more stuff now, to maintain this home we are paying more every month. So, what would you do if you’re thinking of buying your first home?
Buying a home is one of the biggest financial decisions that we will make in our lifetime. With a plethora of factors to consider, the home that you buy will have a lasting impact on your financial future. Making a mistake when buying a home could have considerable consequences. So is renting a better option?
Many individuals and families are renting homes and apartments for several reasons. But when deciding to rent or buy, are you asking the right questions? Let’s take a look at three needs to be considered before a final decision is made:
What Is the Monthly Cost?
A great place to start is assessing how much you will be paying each month. Your rent and mortgage are the major factors to consider, but there are also additional monthly expenses that need to be acknowledged.
When renting a home or apartment you most likely have one financial responsibility to consider, your monthly rate. You are given a number and that is what you will pay. It seems simple, and it is.
All additional costs, i.e. utilities, waste management and others are normally a small fee each month. One important thing to consider, you will not be responsible for regular maintenance. If the air conditioner goes out or dishwasher breaks, the complex will be responsible for fixing it.
There is also the possibility of additional costs when renting. Does your rental property require renters insurance? Does your rental include a washer and dryer, or will you have to use a laundromat? If you have a pet, an additional fee could be added on each month. These “hidden costs” could drive your monthly costs up significantly.
In a home, along with your mortgage, there are several costs that you will be responsible for. Most likely your utilities will cost more seasonally. Having home owner’s insurance is an absolute must. Property taxes are something that you can’t avoid. Also home maintenance projects, renovations and remodel will come out of your pocket.
Are You Really “Throwing Money Away”?
The age-old proverb states, renting is throwing money away each month. The question is if this actually true? There are several advantages to owning a home, but is it the great investment that we always hear about? These questions need to be answered.
“My monthly mortgage is less than your rent.” If you are renting a home you have most likely heard this statement from someone you know. Those often this might be true, but they are not factoring in the additional costs of homeownership. With a fixed rate that you pay each month and fewer additional costs you could be doing the following:
- An increase in available cash
- Put more money in savings
- Focus your finances in other areas
With less additional costs when renting, you can be more flexible with your finances. Following a smart budget and financial plan while renting could have sign a significant impact on your financial future.
On the other hand, there can be much to gain when owning a home. With aspects like tax benefits and building equity, the long term benefits of owning a home could be greater than renting.
What is Your Personal Situation?
When deciding on renting or buying you must consider where you are in your life. Other than your financial status, you must take other circumstances into consideration. Are you locked in your current job? Will your relationship impact your living arrangements any time soon? Will you be adding to the family in the near future? Considering questions such as these should influence your final decision.
Renting provides more flexibility for your lifestyle. With a lease you are able to choose whether you would like to stay or move on with no hassle. With normally a sixty day notice, you are free to move out and not worry about selling a home. If something does occur during the time of your lease, you are most likely still able to move with little to no trouble.
If you are thinking long term, homeownership might be the best option. But with all the twist and turns that life throws our way, renting allows you to make adjustments much easier. Understanding your personal situations needs to play a major role in your decision.
Conclusion: Choosing to rent or buy ultimately comes down to what is best for your situation. There are pros and cons to both scenarios that will have major financial ramifications. Make sure to consider all factors involved for making the best decision possible