Should You Buy or Rent a Home? The Pros and Cons

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There is no easy answer when it comes to the question of whether you should buy or rent a home. It depends on a variety of factors, including your current financial situation, how long you plan to stay in the home, and the local real estate market. In this article, we will discuss the pros and cons of both buying and renting homes, so that you can make an informed decision about what is best for you.

The Pros and Cons of Buying a House

For many people, buying a house is the American dream. But is it the right decision for you? There are pros and cons to buying a house. Here’s what you need to know before you decide to buy.

Pro: You Can Build Equity
When you own a home, you have the opportunity to build equity. Equity is the portion of your home’s value that you own outright—it’s distinct from the amount you still owe on your mortgage. As you make mortgage payments and your home appreciation goes up your equity increases. If you ever need cash, you can access your equity by selling your home or taking out a home equity loan.

Con: You Have Maintenance Costs
Owning a home comes with maintenance costs—and sometimes, those costs are unexpected. When something breaks, it’s usually up to the homeowner to pay for repairs. And, depending on how old your home is, you may need to replace things like the roof or HVAC system. While some homeowners enjoy having this extra sense of control, others find it stressful.

Pro: Prices Usually Go Up Over Time
Historically, housing prices have gone up over time. This means that if you buy a home today and sell it years from now, chances are good that you’ll sell it for more than what you paid—assuming, of course, that you take good care of it. Of course, there’s no guarantee that prices will continue to go up, but if you’re planning on staying in your home for many years, it’s likely that the value will appreciate over time.

Con: It Takes a Long Time to Build Equity
If you’re looking at building equity as an investment strategy, buying a house isn’t always the best option—it can take a long time to see any return on your investment. When compared with other types of investments like stocks or mutual funds, real estate generally grows more slowly. According to Zillow research, from 1996 to 2016, the median U.S. home appreciated 76%. That equates to an annualized return of about 3.5%. In contrast, since 1928, the stock market has averaged an annualized return of about 10%.

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There are pros and cons to everything in life—even something as seemingly great as owning a home. Before making this major decision, weigh all of the factors carefully to ensure that buying a house is the right choice for you!

The Pros and Cons of Renting

For many people, the American dream includes owning a home. But is buying a home always the best option? There are advantages and disadvantages to both renting and owning a home. Here’s a look at some of the pros and cons of renting.

The Pros of Renting

There are several advantages to renting a home rather than buying one. One of the biggest advantages is that there is no long-term commitment. When you rent, you can move if your job changes or if you want to live in a different area. You’re not tied down to one house or one location.

Another advantage of renting is that there is no responsibility for maintenance or repairs. If something breaks, it’s the landlord’s responsibility to fix it. This can save renters a lot of time and money. Additionally, minimal unexpected costs for repairs can be another perk for renters; most landlords will take care of repairs and maintenance without charging the tenant extra.

In some cases, renting can even be cheaper than owning a home. This is particularly true in areas where housing prices are high and incomes are relatively low. In these situations, it may make more financial sense to rent than to buy.

The Cons of Renting

Of course, there are also some disadvantages to renting a home rather than owning one. One downside is that there is no permanence; you may not be able to stay in your rental unit for as long as you want or need to. Additionally, your rent isn’t fixed; it could go up at any time, while your mortgage payments would stay the same if you owned your own home.

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Another disadvantage is that you may not be allowed pets in a rental unit; this could be a problem if you have pets or if you’re planning on getting them in the future. Additionally, you may have to rely on your landlord for things like stability and maintenance; if your landlord decides to sell the property or move elsewhere, you’ll have to move as well.

And finally, there are generally no tax benefits associated with renting; when you own a home, you can deduct mortgage interest and property taxes from your taxes, which can amount to significant savings come tax time.

Overall, there are both advantages and disadvantages to both renting and owning a home. It’s important to consider all factors before making a decision about which is right for you. If you’re not ready for the commitment of owning a home or if you don’t think you can afford it, then renting may be the better option for you. On the other hand, if you’re looking for stability and tax benefits, then owning might be the way to go. Ultimately, only you can decide what’s best for your unique situation.

Preparing to Purchase a Home

Owning a home is a dream for many Americans. There are definite pros and cons to homeownership, but there are some key things you can do to be prepared if you’ve decided that buying a home is the right move for you. Freddie Mac, a government-sponsored enterprise that provides funding for mortgages, recommends taking the following steps.

1. Determine if you are mortgage ready. In order to get pre-qualified for a mortgage, you’ll need to provide your lender with information about your employment history, income, debts, and assets. They will use this information to determine how much of a loan you’re eligible for. You can get pre-qualified for a mortgage by talking to a lending officer at your bank or credit union, or by working with a mortgage broker. Getting pre-qualified will give you an idea of how much house you can afford and can help streamline the homebuying process later on.

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2. Figure out how much you can afford. Once you know how much of a loan you’re eligible for, it’s time to start thinking about what kind of monthly payment you can afford. In addition to your mortgage payment, you’ll also need to factor in the cost of property taxes, homeowners insurance, and any HOA dues or other fees associated with the property. A good rule of thumb is that your total monthly housing payment (mortgage + taxes + insurance + fees) should not exceed 28% of your gross monthly income.

3. Determine if you have saved enough for a downpayment. The final step in preparation is to start saving for your downpayment. Most lenders will require that you put down 20% of the purchase price in order to qualify for a conventional loan—though there are programs available that allow for smaller downpayments. If you don’t have 20% saved yet, don’t worry! Keep saving and look into low-downpayment options like FHA or VA loans until you’ve reached your goal.

Purchasing a home is a huge financial decision—but it doesn’t have to be an overwhelming one. By taking the time to prepare ahead of time, you can streamline the process and make sure that you’re making the best decision for your financial future.

Freddie Mac’s My Home website is a great resource for anyone preparing to purchase a home. The site offers information on every stage of the process, from pre-purchase all the way through post-closing. And if you’re not quite ready to buy just yet, be sure to share this article with your friends and family—anyone who’s thinking about buying a home in the future will appreciate the valuable information here. You can also sign up for MyChesCo’s free newsletter to get news and information delivered straight to your inbox.

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This article is intended for informational, entertainment or educational purposes only and should not be construed as advice, guidance or counsel. It is provided without warranty of any kind.