The age-old question is it better to rent or buy a home? There isn’t a right answer to this question. It depends on you, your situation, and your plans.
In this article, we’ll look at all the pros and cons of owning a home vs renting one.
Pros and Cons Of Owning A Home
Pros and Cons of Renting
Do You Qualify for a Mortgage?
If you’re a first-time homebuyer considering buying your first home the first thing you need to do is get pre-approved for a mortgage. There are several mortgage programs for first-time homebuyers that offer low down payments.
- FHA Loans – FHA home loans require a 3.5% down payment with a 580 credit score, or 10% down with a minimum 500 credit score.
- VA Loans – VA loans are a type of no money down home loan program for veterans. A 580-620 credit score is needed and no mortgage insurance is required.
- USDA Loans – The USDA home loan program is for low-to=median income first-time homebuyers buying a home in a USDA-eligible rural area. You need a minimum 620 credit score, no down payment, and meet the income limits of 115% of the area median income (AMI).
- HomeReady and Home Possible Loans – The HomeReady and Home Possible loan programs from Fannie Mae and Freddie Mac for low-income first-time homebuyers whose income is below 100% of the area median income. Borrowers with a 620 credit score and a 3% down payment are eligible.
- Conventional Loans – Conventional loans have higher down payment requirements than government home loans. You’ll need 5%-20% down and a 620 credit score to qualify. Borrowers who have a 20% down payment will not need to carry mortgage insurance.
Are you Ready to Become a Homeowner?
How long will you be living in the home?
If you don’t plan on staying in a home or city for more than five years, then renting makes more sense for you. However, if you’re not going anywhere anytime soon, then buying is cheaper than renting in the long run.
Do you make enough money to be a homeowner?
As a homeowner, you’re responsible for anything that needs to be repaired. There is no landlord to complain to. If a pipe bursts, you can’t just call your landlord and have it fixed for free. You’ll have to hire a professional to make any repairs.
There are homeowners associations, mortgage insurance, homeowners insurance, and property taxes. The various fees all add up and can be quite costly in some cases.
Do you have enough money saved up?
When getting a home loan there are several upfront costs you need to be prepared for. Closing costs, upfront mortgage insurance premiums, home appraisal, and inspection. These costs are in addition to the down payment.
A rent-to-own home may look like an attractive option, especially if you have bad credit and cannot get approved for a mortgage. However, these types of agreements are very risker for the buyer.
The property owner may fall behind on the mortgage payments, and you will be forced to leave the home. These rent-to-own agreements usually require an upfront down payment or deposit as high as $15,000.
That’s a lot of money to have on the table for a home you don’t own yet. You may change your mind or find another house you like, and you will lose out on your deposit.
Benefits of Owning a Home
An advantage of owning a home that is often talked about is the tax savings. When you have a mortgage payment, the majority of that payment goes towards the interest. The amount of interest you pay on your mortgage can be tax-deductable.
Home equity is the difference between the principal loan balance on your mortgage and the market value of your home. For instance, if your home is worth $200,000 and your loan balance is $100,000, you have $100,000 in home equity.
When you own your home, you build equity with every mortgage payment. It is sort of like a forced savings account. You can use your equity to take out home equity loans in the future to help you pay off high-interest debt or make renovations or repairs to your house.
There are many pros and cons to owning a home. It’s up to you to decide if it’s in your best interest or you should continue to rent until the time is right.
There are many housing expenses involved with being a homeowner: property taxes, homeowners association and insurance, mortgage insurance, cost of repairs, and upgrades.
Are you ready to become a homeowner?