better to rent or buy

Is it better to rent or buy? Everything you need to know before you move

Bethany Ramos First-Time Homebuyer, Home Buying

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At face value, it doesn’t make much sense. But hear us out. If owning a home has always been on your grown-up bucket list — a rite of passage right up there with getting your dream job and starting a family — you may be less than happy to find out that many homeowners are paying more than renters each month.

How much will it really cost you to rent versus buy? Use our handy calculator to find out.

The big draw of renting: It’s cheaper

In all 50 states, it’s more expensive to own a home than it is to rent, according to NerdWallet’s assessment of the 2015 American Community Survey data from the U.S. Census Bureau. Even in the state where the cost of owning a home is the lowest, Florida, it’s still about 33 percent more expensive to own than rent. In a state like New Jersey, the median monthly cost of ownership is 93 percent higher than renting.

“Renting a house, condo, or apartment means that you have a shorter commitment – a one year lease is common. Your financial outlay is fairly capped, allowing you to budget for rent and utilities, if any, and calling for a small investment of first and last month’s rent,” says Scott Cummins, Senior Loan Officer at Cornerstone Home Lending, Inc., NMLS #208602.

Let’s take the first step together. Get prequalified for a mortgage online.

One big benefit of renting, Cummins says, is that there is no ownership interest held.

You are not responsible for repairs or maintenance. If treated like a short-term option, a rental can allow you to get to know the area and decide if the area is conducive to where you want to live. “If the traffic is unbearable, or the neighbors not so nice, you can leave at the end of your lease and sample a different area. This freedom makes sense for people who are new to a city, recent graduates who may get job opportunities elsewhere, or those who simply do not want to commit,” Cummins explains.

Many renters also love the fact that in an apartment or condo setting, you’re often rewarded with other amenities such as workout facilities or pools. These are features you may not get with a similarly priced home.

The big draw of homeownership: It makes money

There’s a time and place when it makes a whole lot more sense to rent. But in general, when talking about housing, most financial folks recommend buying when you can afford it. David Bakke, personal finance expert at Money Crashers, says, “It’s usually best to buy if you can afford to since it’s actually an investment rather than just a purchase.” Bakke qualifies that there are times when renting may be better in the interim, depending upon personal factors.

“Owning a home is, conversely, a longer commitment,” Cummins says.

“The average homeowner tends to look at a purchase in the scheme of a 3 to 5-year setting. This often mirrors job expectations and schooling for children. Because a mortgage is not a question of cashflow, the payment is often the same, if not lower, than a comparable rental unit.”

Here’s where the monetary investment comes in. Cummins reminds us that a purchase still does require some form of cash infusion — in a down payment, closing costs, or both. And, compared to renting, credit profiles may be more stringent when getting a mortgage. Homeowners will also be responsible for repairs and maintenance.

“Don’t cringe though!” Cummins says. “There are often warranty options to help defray large ticket repairs. Homeownership has its rewards too. Barring a severe downturn and repeat of the housing crisis, real estate can be a sound financial investment. Unlike renting, a portion of your payment goes toward reducing the loan principal each month. This acts as a steady drip that increases your equity in the home.”

Even considering the higher cost of homeownership mentioned above, many homeowners are perfectly content to pay more for their housing because of these added benefits.

The current tax code also allows homeowners to write off property taxes and interest on a tax return, possibly reducing their tax bill.

In a study conducted during the Great Recession and published in 2013, researchers from Brown School’s Center for Social Development (CSD) at Washington University, St. Louis, proved that the right mortgage could help the average homeowner to build wealth. Low to moderate-income homeowners who participated in the study from 2005 to 2008 came away with a higher net worth than the study participants who rented. In the comparison between the two groups, homeowners saw greater short-term increases in net worth, assets, and non-housing net worth. The study authors took care to point out that responsibly written mortgages — characterized by low upfront costs and low interest rates — are the key to financial security and independence.

A mortgage is a monthly investment, but your payments will add up over time. These payments can then be returned to you when you sell your house. Real estate appreciation, Cummins says, is often the single largest contributor to a family’s long-term wealth.

Buying a house feels easy when you work with a lender you can trust.

Better to rent or buy? How to know when the time is right

better to rent or buy

If you’re stuck at a fork in the road, it may help to remember that buying a house isn’t for everyone. “Try blurring the lines between a short-term commitment and the purchase of a home as made easy by HGTV,” Cummins says. “And you run the risk of losing your money and your sanity!”

Cummins provides a few telltale signs that renting may be the best move for you. If you:

  • Are new to town.
  • Just got a new job with realistic possibilities of movement or relocation.
  • Don’t want a long commitment.
  • Enjoy the perks of a community pool, onsite gym, and other amenities.

You may be ready to buy, Cummins says, if one or more of these criteria fit. If you:

  • Know where you want to live.
  • Feel confident in your job location.
  • Don’t mind a longer commitment for a longer reward.
  • Can drive to a local pool or gym.
  • Want to build wealth over time.
  • Would like a tax deduction.
  • Don’t want to get your landlord’s permission for housing changes or upgrades.

To answer the burning question of “when to buy,” Desare Kohn-Laski, real estate broker and owner of Skye Louis Realty, recommends looking at your financials for guidance. “See if you will be able to afford a down payment and mortgage. Always make sure your monthly income is three times more than your mortgage payment.” When and if those guideposts are met, it could be your season. Kohn-Laski also urges prospective homebuyers to take into consideration interest rates and inventory. And above all, make sure you have an experienced realtor and lender to help.

When you’re ready to make the leap from renter to homeowner, we’re here to make it easy. Start by contacting one of our loan officers. A Cornerstone team member can help you get prequalified for a mortgage to find out how much house you can afford. Nothing beats working with a lender that cares about getting you into your house as much as you do.

For educational purposes only. Please contact your qualified professional for specific guidance.

Sources are deemed reliable but not guaranteed.

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