If you’re in the market for a new home, you should know the differences in renting vs buying. Here is a chart, presented by Steve Harney, showing the cost of renting vs buying, historically and now. You’ll notice that the percentage of income needed to afford a median home is LESS than what you need for median rent!
Buying a home can be a lot of money up front… you’ll need a down payment – the lump sum due at closing, usually a percentage of the purchase price. It’s usually 20% down, but some lenders will do as low as 3.5%. You’ll have monthly mortgage payments, which include principal and interest payments, taxes and homeowner’s insurance. During the buying process, you will have inspections done and the lender will order an appraisal. There are closing fees such as state and local taxes, loan origination fees and recording fees, among others. Usually these closing costs run 2%-4% of the purchase price.
When you buy a home, you build equity(ownership) over time. You get tax breaks-like Homestead Exemption and some Federal Tax Exemptions. Besides the financial benefit of buying, you may also improve the home to your liking. You will need to be ready to maintain the home, or call services to help maintain, as you have no landlord to ask for help.
Renting ends up being less money up front…you usually need first month’s rent, and 2 months security deposit or 1 months security and last month’s rent. If it’s a condo, there is almost always an association which runs credit and background checks as well as an application fee. If it’s a home, the landlord will usually request credit and background check as well, but there is no association fee. You will incur the cost of movers each time your lease comes to an end, many times you will be paying utilities such as electric and sometimes the water bill.
If you’re renting, you’re paying the mortgage for your landlord but if you own your home, the money you spend every month goes towards paying off your mortgage and owning the home! If you’re paying for it, the mortgage might as well be your own.
Renting is great if you’re going to be in that area temporarily, or if you’re moving to a new city and aren’t exactly sure of where you want to settle down. It’s a great way to get a feel for a neighborhood and everything that goes with it. In rentals, the landlord is usually responsible for maintenance and repairs, and that’s a comfort to many people.
It all comes down to what’s best for you… do you have enough to cover the upfront costs of purchasing a home? Are you ready to be fully responsible for maintaining a home? Are you ready to move to a specific area and settle in or do you want to explore your options and test out living in an area before buying? These are some of the questions you need to answer in order to decide if buying or renting is for you.
Whether it’s renting or buying, the Restivo Hechtman Team is here to help. We can help you run some numbers, explore neighborhoods, lend an ear and ultimately find you the perfect home. Contact us today to get started.