The decision to purchase a home is one of the biggest financial decisions most families or individuals will make in their lifetime. Purchasing a home can mean substantial savings over the homeowner’s lifetime, but homeownership also means significant costs such as maintenance, insurance and taxes. For these reasons, it is important that everyone makes sure they are ready to buy a home before deciding to buy. Considering the pros and cons of renting and buying is the best way to do this.
The Renting vs Buying argument usually starts by considering the costs of both methods. Renting is usually fairly straightforward. A person is able to see all of the cost involved with renting before signing a lease. As long as the rent, deposit, and renter’s insurance are affordable, a person will be able to rent a home within their budget.
Buying a home is more complicated. To start, a person has to find a mortgage. Since mortgages vary based on the bank, size of the loan, and loan term, there are literally thousands of different possibilities to sort through before finding one with the best rates and payment terms. After being pre-approved for a house, the process of home buying begins.
While looking for a home to buy will cause a potential buyer to look at many of the same factors that a potential renter has, it is also necessary to consider the potential maintenance, insurance, and tax costs of the home. Of the three, maintenance is probably the most overlooked and under-considered factor.
In general, a homeowner can expect to spend about one percent of the total value of his or her home every year on routine maintenance. Unlike renting, owning a home means that when something breaks, it is the homeowner’s burden to fix it. This will require a homeowner to keep a significant amount in savings to have on hand when something goes wrong.
Furthermore, a person who is buying a house must prepare to pay property taxes and insurance costs for the home’s structure. Unlike renter’s insurance, homeowner’s insurance can cost several hundred dollars a month. Property taxes can increase or decrease as local politicians try to balance budgets and keep their citizens happy. This means a homeowner should expect to keep extra money on hand to pay for increases to these budget items.
If a person is financially ready to buy a home, buying can be a good option. Otherwise, it may be wise to rent for a few years before purchasing a home.