Renting vs. Buying

Jun 28, 2022 | Mortgage Guides

Renting an Apartment vs. Buying a House

In today’s housing market, renting can be as expensive as owning a home in some areas. However, the purpose of renting remains as legitimate as ever: flexibility. This type of flexibility continues to make renting popular among people who cherish the freedom to move without homeownership restraints. 

Renting provides a sense of flexibility that allows tenants to change their place of residence with reduced expenses compared to homeowners. However, buying is an excellent option if you are committed to a particular community and possess the necessary funds, making it sensible for those who value stability, ownership, and long-term investment. Condos, suburban homes, and more still offer the community setting without the exorbitant rent payment each month that apartments have. 

Renting and buying can each be a suitable choice if you enjoy urban or community living, with one often being cheaper or more advantageous depending on your unique situation. Both homeowners and renters must keep several things in mind as they weigh their options. Factors such as lease terms, utilities, and mortgage payments are significant in determining what best meets an individual’s needs.

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Consider ‘The Big 3’ When Deciding Between Renting or Buying Your Home

If you’re on the fence about purchasing a home, here are three essential questions to ask yourself:

1. How Are Your Finances?

You must consider the added costs beyond the purchase price when buying property. For instance, you will need to factor in costs such as:

  • A down payment
  • Closing costs for the real estate transaction
  • The monthly mortgage payment of the property
  • Monthly mortgage insurance (a fee automatically applied if you don’t provide at least 20% of the total property costs at the time of signing the buyer’s contract)
  • Homeowners Insurance
  • Homeowners’ Association (HOA) fees
  • Property taxes (which apply to apartments and homes)

All these costs can seem overwhelming. However, it’s important to remember that much of your property’s equity could be repaid if you decide to sell the home and maintain proper care.

If you are looking to rent instead, consider the following costs:

  • Monthly rent costs
  • Security deposit
  • Renter’s insurance
  • Administrative fees

You may need to save up to plan for all these costs properly. Knowing the general state of your finances is vital, as there are so many costs to consider.

What Is Your Credit Score?

The first element of your finances to consider is your credit score. A better score will help you secure a better mortgage interest rate on your home. A credit score in the ‘Very Good’ or ‘Exceptional’ category is helpful for homebuyers.

Requesting a free copy of your credit report can help you determine where your credit stands. This information can then help you formulate a plan to better your credit. Thankfully, the Fair Credit Reporting Act legally entitles you to a free copy of your credit report each year.

What is Your Debt-to-Income ratio?

Lenders will determine your debt-to-income ratio (DTI) based on your gross monthly income compared to the amount of debt listed across all your open credit accounts. This metric includes auto loans, student loans, credit card balances, and any personal loans you might have. When lenders factor in this score, they will also consider the debts and income of your legal spouse or partner, if applicable.

2. What’s the Best Location?

Consider your local real estate market. In many places, you can secure a fixed-rate mortgage with stable payments for less than the rent price of your average apartment. However, renting an apartment can be more cost-effective in some areas.

For example, if you live in an urban area and the costs of owning an apartment outweigh the costs of renting, it might be wise to continue renting in that area (especially if you don’t plan to live there for the long term).

3. What is Your Type of Lifestyle?

Your lifestyle is also a factor to consider when choosing your housing type. It could be helpful to imagine yourself five to seven years from now. Will you be working in the same career field and living in the same area? If so, it may be wise to buy an apartment.

If you have a history of moving around, there may be better times to buy a home. But if you feel confident in the trajectory of your life and find yourself wanting to stick around town for the next five to seven years, then it could be the right time for you to buy.

Pros and Cons of Renting an Apartment vs. Buying a House

Pros of Buying a House

  • Your monthly payment goes toward the investment (and equity) of your home value and building equity.
  • Your monthly mortgage interest payments have tax benefits (annual deduction).
  • Your monthly housing payments will remain the same compared to the cost of rent, which continues to rise.
  • Your home mortgage loan will diversify your credit.

Cons of Buying a House

  • You pay for home repairs.
  • Upfront costs like the down payment and closing costs.
  • Risk in the real estate market. There’s no guarantee your home’s value will increase.

Pros of Renting an Apartment

  • The flexibility of being able to move out quickly.
  • No property tax.
  • Less money upfront. Security deposits and admin fees are much less than the down payment on a house.
  • Lower costs of maintenance, repairs, and other services because the landlord usually covers these fees.

Cons of Renting an Apartment

  • Rent increases.
  • A lack of equity.
  • Decoration and living restrictions.

Renting vs Buying? Which is the Better Option?

Examining your finances and lifestyle can help determine if you are ready to rent or buy your home. If you value flexibility and do not want to deal with home maintenance, renting may be a better lifestyle choice. Buying may be your better option if you value the perks of homeownership and have the upfront capital. Regardless, the choice is yours. 

In both cases, job stability is critical to consider before committing to renting or buying. Whether it’s planning for monthly rent payments as a tenant or managing home expenses as a homeowner, the right decision will ultimately depend on the individual’s unique circumstances and preferences. Potential buyers and renters should carefully weigh all factors before entering an agreement.

To learn more about the differences between renting and homeownership, contact Wesley Mortgage. Their team of mortgage loan experts can help you find the proper resources to land your dream home. Call today at (888) 407-2102.

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