The Buying vs Renting a Home Discussion

When it comes to buying vs renting a home, it all depends.

According to the National Association of Realtors®, 78% of non-homeowners believe homeownership is a good financial decision.

Wealth Front states only 37% of millennials between the ages of 25 and 34 own a house.

Subsequently, 63% out of the bunch stated they regretted buying a house.

59% of these individuals stated their top reasoning for regretting their purchase was due to unforeseen maintenance costs.

For example, just because your lender pre-approves you for $350,000 doesn’t necessarily mean you can comfortably afford the monthly payment of such.

Perhaps, the limit to which you’re comfortable with $320,000 instead.

But just like anything else in life, there are pros and cons to each when it comes to buying vs renting a home.

The cost associated with buying a home vs renting can vary drastically.

Fortunately, there are many first-time homebuyer programs available for anyone who qualifies.

In fact, in my state of Virginia, the Virginia Department of Housing Authority’s programs can allow you to buy a house with no money down.

Try using Zillow’s Rent vs. Buy Calculator or listen to what Dave Ramsey has to say on rather to rent or buy.

  • What Are Your Goals Within the Next 5-years?
  • Pros of Buying vs Renting a Home?
  • Cons of Buying vs Renting a Home?
  • The Reality of Buying vs Renting a Home
  • First Time Home Buyer Programs

Contemplating on Buying a House

A man contemplating on buying vs renting a home.
Image: Ali Yahya on Unsplash

So, let’s say you’re currently renting and you’re thinking about buying a house at some point.

The first thing you need to think about is how much can you put towards a down payment.

Depending on your loan type, it could be as little as 3% or as high as 20%.

Then you need to calculate your debt-to-income ratio.

All you need to do is divide your monthly expenses by your gross monthly income.

Keep in mind that most lenders will not lend to a borrower with more than a 43% debt-to-income ratio.

In addition to that, the higher your credit score, the better the interest rates will be.

Here’s an example by Wealth Front: “On a $400,000 mortgage with a 30-year term, the difference between 4% and 5% interest is $68,000.”

Before buying a house, it is recommended to have at least 3-6 months of expenses saved as emergency funds.

This fund will allow you to cover unexpected maintenance issues that may occur after buying a home.

For example, during your first three months of homeownership, your hot water tank may unexpectedly fail.

What Are Your Goals Within the Next 5-years?

The dream of buying vs renting a home.
Image: S O C I A L . C U T on Unsplash

This is a very important question to ask yourself while deciding to rent or buy a house.

For instance, do you plan on having kids?

Featured: 15 Questions to Ask When Buying a Home with Kids

At some point are you planning to relocate to seek a better job opportunity?

Fortunately, buying a house instead of renting could still be a wise decision if you’re planning on moving within the next 5-years.

Take a look at the Calculate Equity & Appreciation section of my article titled “How Can I Afford a House?” to understand the numbers in detail.

If you’re currently living in a college town or an area that has a lot of military, chances are you will be able to rent your house out as an investment once you move.

The rule of thumb is if the property can make a return of 1% of its current value, then you may have a good rental in your hands.

Featured: How to Rent Your House: The Definitive Step-by-Step Guide & Why You Should Rent Your First Home If You Buy a Second

Pros of Buying vs Renting a Home?

Buying vs Renting a Home: Pros

Renting Pro

Renting may allow one to live closer downtown or in the heart of a densely populated city to be closer to work.

Owning Pro

However, owning a house may offer more of a peaceful suburban lifestyle, depending on the area.

Renting Pro

Renting will offer more predictable monthly expenses with less responsibility towards maintenance.

The property management will more than likely take care of all of the repairs and upgrades made necessary.

Owning Pro

Unlike renting, one of the key advantages of homeownership is appreciation and equity build-up which will increase your net worth.

Cons of Buying vs Renting a Home?

A baby upset about the cons with buying vs renting a home.
Image: Ryan Franco on Unsplash

Buying vs Renting a Home: Cons

Renting Con

The landlord can bump the rent because rent prices increase with inflation caused by demand.

Owning Con

Home values can decline due to a vast array of factors such as an increase in crime or a weakening economy which is followed by job losses and possible foreclosures.

Renting Con

You may be restricted as to what you can do with the property.

For example, some landlords may not allow pets.

Owning Con

You are responsible for repairing any unforeseen maintenance costs of which can be very expensive.

For example, according to Fire and Ice Heating and Air Conditioning, the costs of replacing a residential HVAC unit can range from $4,400 to $13,000.

Ouch.

The Reality of Buying vs Renting a Home

According to Investopedia, expenses you encounter while owning a home may include but are not limited to the following:

  • Property taxes
  • Trash collection
  • Water and sewer services
  • Various repairs and maintenance
  • Pest control
  • Lawn care and landscaping
  • Homeowners insurance
  • Pool maintenance (if you have one)
  • Flood insurance (if required by the lender)
  • Earthquake insurance (depends on the location)
  • HOA dues

Although remodeling shows on HGTV claim their cookie-cutter renovations add a ton of value to a home, that isn’t always the case.

Remodeling Magazine stated you will get an average return of 0.66¢ per $1.00 spent.

However, there are more perks associated with owning a home instead of renting.

Tax advantages.

Featured: Tax incentives and issues for homeowners for more tax advantages

Uncle Sam's tax within the tax law adds a con to the buying vs renting a home comparison.
Image: Sandy Hibbard on Unsplash

You may be eligible to write off your mortgage interest on your taxes.

However, everyone isn’t eligible for itemized deductions due to changes made in the tax laws in 2018.

I’m getting sick and tired of this Uncle Sam guy.

First Time Home Buyer Programs

If this section of the article doesn’t help to hush the buying vs renting a home debate, I don’t know what will.

Like I stated in the introduction, there are many programs available to assist first time home buyers.

In my state of Virginia, the Virginia Department of Housing Authority (VHDA) offers many loan programs for first time home buyers.

And in addition to that, the VHDA also offers grants to assist first time home buyers with their down payments and closing costs.

For instance, if you meet their requirements, you may be able to receive 3.5% down payment assistance.

So, let’s say you have a VHDA-FHA loan which requires a minimum of 3.5% down.

Depending on your credit score, their Plus Second Mortgage could allow a first time home buyer to put 0% down.

Something else one could take advantage of is their Mortgage Tax Credit Certificate.

An MCC will enable first time home buyers to save 10% of the amount of annual mortgage interest owned.

This certificate will be good for the entire term of the loan, in which all VHDA mortgages have a 30-year term with a fixed interest rate.

The remaining 90% may also be taken as a tax deduction.

You could also take advantage of their Virginia Housing Loan Combo.

This allows qualifying first-time buyers to have down payment assistance, a tax credit, and a free first-time homebuyer class all in one.

Thus, making it a money-saving benefits package.

How to Find First-Time Home Buyer Programs

You may also want to do a quick Google search to see if your county or city offers any first-time homebuyer assistance programs.

For example, in my area of Williamsburg, Virginia, James City County offers programs for first time home buyers.

If you’re not in my location, just check the Housing of Urban Developments’ (HUD) website and select your state.

Then you will be able to see the various first-time homebuyer assistance programs available.

Keep more money in your piggybank by buying vs renting a home.
Image by Gino Crescoli from Pixabay

About the Author

Hello there,

My name is Marlon A. Thomas Jr., a Williamsburg, VA native, and real estate agent.

The company I hang my license under is Keller Williams of Williamsburg, the largest real estate brokerage franchise in the world.

As a proud member of the Williamsburg Area Association of REALTORS®, my goal is to provide the best possible buying in selling experiences in the area.

While being amongst the top real estate agents in my firm, the value and knowledge gained have helped me become very knowledgeable whiling gaining expertise as a Realtor.

With inventory being so low, buyers must move fast once they see homes with the features they desire.

Especially if you’re looking for homes in the area with features such as a pool, in-law suite, or a basement.

If you’re contemplating on selling, take a look at the Services I offer if you’re interested.

I look forward to talking with you soon, contact me by email or phone if you have any questions or real estate needs. Take care!

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