Are you entertaining the idea of buying a house? You’re probably tired of renting, but unsure if you can really afford a house. Find out if it’s better to buy or rent, and what’s more suitable for you before you apply for a home loan.
When you rent, your costs are often more condensed than the costs of homeownership. When it comes to upfront costs, you pay a security deposit. You may also be responsible for a broker’s fee if you find your rental through an agency, which requires compensation. Then you have monthly fees of lease payments and renter’s insurance. Below are the top renting vs. buying pros and cons.
- Security deposits are much smaller than most mortgage down payments.
- No maintenance costs (usually).
- You don’t have to sell in order to leave.
- No property taxes to pay.
- Credit requirements aren’t as rigid.
- Utilities are sometimes included.
- You must wait for your landlord to do maintenance.
- You don’t build equity as you pay in.
- You don’t strengthen your credit history.
- You cannot make changes to the property unless the landlord okays it.
- The landlord can raise the rent as they wish to.
- You can’t claim it on your taxes.
- You may have to pay to do your laundry—either on premises or at a laundromat.
Costs of Buying a House
The upfront costs of buying a home are definitely larger than those associated with renting, but that doesn’t mean it’s not worth it. Many people refer to buying a house as the next big step in their lives or their relationship. It’s something many people work hard to save for and take great pride in. On the surface, buying a house can seem like an intimidating task, but it has many rewards. Just remember, you’ll want to do the calculations to make sure buying a home is right for you.
- You build equity and your credit.
- If you decide to sell, you may be able to earn a profit.
- You can make a profit renting it out if you choose.
- You get tax benefits through write-offs and deductions.
- You can refinance to pay less interest.
- You can refinance to lower your monthly payment.
- There’s no need to get approval for pets or to pay a deposit for them.
- Remodeling, additions, gardening, painting, etc. are all things you can do without needing a landlord’s approval.
- It’s something to take pride in.
- You’re responsible for house maintenance.
- It’s financially more risky than renting.
- It’s generally a long-term commitment.
- There are closing costs—like the first year’s home insurance payment.
Costs to Consider When Buying a House
As you can see, there are many pros and cons to buying a house, but you may be wondering what costs you should consider when buying. Beyond the down payment, there are some other fees and costs you’ll have to have ready. These things are earnest money (a percentage of the purchase price you put down to show you’re serious), appraisal fee, inspection fee, lender’s fees, title fees, and the first year’s home insurance.
Do the Calculations with a Rent vs. Buy Mortgage Calculator
Unfortunately, there’s no straightforward answer to whether it’s better to rent or to buy. It’s really quite a personal thing. There are, however, some factors you should consider before making a decision. The first is the house price. You’ll need to calculate what an equivalent rent price1 is and see if that works for you. The next thing you should think about is how long you plan to stay. The longer you stay, the more the upfront fees are offset.
Another item to ponder is what your mortgage will look like. When factoring in interest, down payment, and length of the mortgage, how does this compare to renting? Then there are other buy vs. rent equivalent factors to consider, like closing costs, maintenance fees, and taxes. You’ll need to calculate a realistic figure you can afford on a monthly basis and understand what the rent equivalent would be. Remember, there’s no right answer; only what option is best for you.
Easy to Use Calculators
Now that you know a bit about what buying a house entails, use one of our calculators2 to learn if renting or buying is right for you. If you’d like to buy, try out some of our mortgage calculators to see what options are a good fit for you.
If you have questions or would like to learn more about mortgages, call A and N Mortgage, your Chicago mortgage broker, at 773-305-5626!