 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Pros and Cons of Buying and Renting
Buying a house, be it your first or second house, can be an exciting process. However, it is also complex, involving months of research, several different negotiations and multiple transactions.
Buying a house is a big decision. You should understand the pros and cons of owning versus renting. In general, if you plan to stay in one place for more than 2 years, buying may be better than renting. But if you move frequently and live in each place in less than 2 years, the costs associated with buying (closing costs) and selling (commission and closing costs) probably outweigh the benefits of ownership.
| |
Buying |
Renting |
| Pros |
- Pride of ownership
- Your shelter is also an investment (appreciation)
- Equity (mortgage pay-down or pay-off)
- Mortgage interest tax deduction
- Freedom to decorate/renovate
- Better off financially in the long run
|
- Landlord fixes problems for you
- No emergency fund needed for repair or maintenance
-
More mobility (you can move around when your lease ends with no hassle to sell the place) |
| Cons |
- Time and effort for upkeep
- Financial burdens of upkeep
-
Difficulty moving on short notice |
- You are paying someone else's mortgage
- Your rent is not tax deductible
- No equity earned in paying rent
-
Restrictions in what you can do with the property |
The Department of Housing and Urban Development (HUD) provides a
buying vs. renting calculator that you may find useful.
Before you buy, make sure you calculate a budget that includes all monthly costs associated with owning a house. Your monthly payment is referred to as PITI (Principle, Interest, Tax, and Insurance). In addition to your PITI, you also need to calculate any applicable Homeowners Association (HOA) or condo fees. If you put down less than 20% at the time of purchase, you will also be required to pay for Private Mortgage Insurance (PMI). (The mortgages section discusses how to avoid paying PMI.)
A Brief Overview of the House-Buying Process
Depending on your readiness and understanding of the process, you should devote three months to a year to planning before you buy. First, you must understand your credit, where you stand in the credit worthiness and what you can do to improve your credit scores. Secondly, think about the financing of your purchase. Where will the money come from? How long will it take you to save the money for your purchase or for a down payment? What do you need to know about mortgages and the loan process? What can you afford? Third, after you secure financing, be it your own savings or a mortgage, you may start house hunting. You will need a real estate agent to help you search. You also need to finalize all of your wants and needs in a house. Along the way, you should have thought of the type of neighborhood and house you want to live in, the must-haves and the nice-to-haves. Once you find a house and sign a purchase contract, the last step is closing, i.e., the process of transferring ownership to you. Finally, you can move into your new house.
Note that while the steps summarized above reflect the normal house buying process, the tasks within each step are not necessarily linear. For example, you don't need to wait until you get your credit and finances in order to think about the style of house you want to live in or the location where you want to buy the house.
| |
| | |
| |
|
