“Should I rent or buy?” No matter where you live, it’s a big question. Renting offers people fewer maintenance responsibilities and the flexibility to change your mind about where you want to live. But owning a home can be a smart investment. Plus, you can put down roots, develop a sense of community and have pride of ownership.
The decision to either rent or own a home is a complicated one. It can depend on where you are in life, and the goals and plans you have for the future. But one of the most important considerations is the cost associated with each. Comparing these can help you look at the real bottom line in order to make the decision to buy a home or understand what you’ll be getting if you rent. Here are some of the things you’ll want to consider carefully:
Most leases require the renter to pay a security deposit, and some will request first and last month’s rent on top of that. Depending on the state where you’re renting, there may be rules about how much your security deposit can be. So, if your monthly rent is $1400 (about average for a 1-bedroom apartment in Atlanta), your deposit could cost up to $4200. Have pets? That’s likely to require yet another deposit, and it’s often non-refundable. Add another $300-500.
When you rent a house, your monthly costs will include your rent plus utilities (gas, electric, water, TV and internet). Depending on where you rent, some or all of these utility costs could be included in the rent payment. Water and trash pickup are the most common utility expenses paid by the landlord, while electric and gas are less common. Few landlords cover cable TV or internet service. Typically, part of your monthly rent payment is intended to cover upkeep or simple repairs of your space as well as any maintenance for the grounds. Depending on where you live, you may find that renting can be as expensive as owning a house, yet you don’t build any equity in the property. That means that you can’t use that value to borrow against or cite it as a personal asset. Would buying a home be a better choice?
When buying a home, most mortgage lenders recommend a down payment of between 5% and 20% of the home’s selling price, depending on several factors. Your mortgage loan will cover the remaining 80% to 95% of the selling price. The average down payment is about 10%, meaning you would need $20,000 for a home costing $200,000, but in some cases, it’s possible to get financing for a home without any money down, depending on the loan program.
Additionally, FHA loans can be obtained with just 3.5% as a down payment for buyers who have good credit. Whether you choose conventional loan products or something more unique, there are many ways to get into a home of your own. Keep in mind that a mortgage payment doesn’t cover maintenance and repairs, so it’s important to have some funds set aside to cover those.
You’ll also need to consider closing costs, mortgage interest, or HOA fees. Your credit rating will have a bearing on your interest rate, and closing costs can sometimes be covered by your builder or the seller. Numbers can vary greatly depending on all of these factors, so the most important thing is to make sure you understand everything by using a mortgage calculator to look at a variety of scenarios. For instance, on that $200,000 home with a $20,000 down payment, if your interest rate is 4.25% on a 20-year loan, your monthly mortgage payments would be around $1064. Change that to a 30-year mortgage, and your payments fall to about $882 per month.
A rent-to-own agreement with your landlord allows you to live in the house as a tenant with an understanding that you intend to buy. Most commonly, these are structured to allow you to save for a down payment or improve your credit score with an agreed-upon deadline when you will purchase the home. Rent-to-own financing may require that you pay more in rent to cover the amount to be applied to the purchase. For instance, if your payment is $1800 per month with 20% of that going to the landlord for buying the house, $360 per month would be above and beyond your $1440 rent. In three years, you would have accrued $12,960 toward the purchase. If rent-to-own doesn’t feel like a good fit for you, you can simply set aside the same amount each month to save for your down payment in a more traditional way.
If buying is starting to edge out the other options, it’s important to work with one of the top mortgage bankers. They can help you achieve competitive rates for your mortgage, plus offer options for creative financing and niche products. Whether you choose FHA, VA, or conventional loan products, the right mortgage bankers can make a big difference in how easily you move through the process of buying and closing on your new home. You want to love the home you buy, but you also want to enjoy the process of purchasing it. Working with the right mortgage banker can make all the difference.
No matter what house you choose to buy, BrandMortage is here to help select the right loan to finance your dream home. We offer an extensive menu of loans to fit your needs.
Rebecca Richardson is a Charlotte mortgage banker who excels at helping clients choose the appropriate mortgage strategy and enjoys demystifying the financial process on her blog at rebeccarichardsonmortgage.com. She can be reached by email or at 704.488.8883.