Should You Buy or Rent?

Posted October 28th, 2010
by HomeownersInsurance.org Staff (no comments)

The housing market has taken such a beating during the economic crisis that many are now recommending that people rent instead of buying a home. This advice is founded primarily on current economic factors that will change over time, but there is plenty of opposition to this viewpoint as well.

  1. Credit is harder to come by. If you don’t have perfect credit, you may find it hard to qualify for a home loan right now. Be patient, save up your money for a down payment, and don’t rent the largest home you can afford. Instead, be frugal with your renting dollars and put more toward your savings until the time is right for you to buy.
  2. Renting will make you poor. In the long run, making monthly rent payments you’ll never see again is a sure way to put yourself into the poor house. Homeowners make monthly mortgage payments and build equity instead. That equity can be leveraged when tough times call for borrowing.
  3. The true cost of ownership. Add up all the costs involved with buying a home. There is a large outlay of cash up front, which usually includes a down payment, points, and closing costs. In addition, there will be homeowners insurance premiums, property taxes, and the cost of maintenance and repairs. Before you buy, make sure you have enough financial reserves to cover these expenses.
  4. How to build wealth. Homeowners build wealth in two ways. First, the mortgage payments are like a forced savings plan. Second, home values appreciate over time. While these two factors do not reliably produce wealth over the short term, they are usually expected to have long term payoffs. With housing prices as low as they are, buying a home now is more likely to result in higher appreciation over the next ten years.
  5. Cost offsets. There are tax breaks and other benefits of homeownership that help to offset the costs. Although the first-time homeowner tax credit has expired, you may be able to find down payment assistance if you buy in certain areas that have been hit hard by foreclosure.
  6. Time is the key. If you are planning to move within the next few years, renting may still be the best option. The New York Times comparison calculator shows that it may take as many as six years to break even when purchasing a home.

The decision to rent or buy is a personal one, and the timing will be based on your personal situation. Just don’t expect to rent over the long term and still come out wealthy on the other side. At some point, everyone who can afford to should buy a home they can call their own

Categories: Advice

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