Whether you decide to rent or buy a home for your family, it will be one of the biggest life decisions that you will have to make. The house that we will get will affect your lifestyle, the amount of money that will be left to you at the end of the month, and will dictate how big your accumulated savings will be over the years.

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How To Know If Buying Or Renting A Home Is The Best Option For You

The pros and cons of buying your own home

People buy a house because it is important to have a place to put down their roots; something that they can call their own. It is an investment that can grow and it can also be a source of tax deductions.

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In 2020, the homeownership rate jumped to the highest level since 2008 according to Bloomberg, as people saw it as a way to build wealth. 

But don’t forget that your home can lose value due to a lot of circumstances such as significant population decline and a surplus of housing. The house you bought today might not still be worth the same after 30 years, which means you've lost money after inflation.

Owning a home brings intangible benefits, but it is not for the nomadic types of people, as they need to go from one place to another to look for greener pastures. Also, real estate is an illiquid asset, which means you might not be able to sell it when you want if the housing market is down. 

A house is not an investment you can use for an emergency unless you want to sell it at a price that you will lose much of what you’ve invested in.

Even if the monthly mortgage payment is similar to, or lower than the monthly rent, the overall cost of homeownership is still higher than the overall cost of renting because of the taxes, insurances, and maintenance expenses you have to pay as the owner.

The pros and cons of renting a house

Renting a home, on the other hand, offers a lot of flexibility. When you rent a home, your monthly expenses are predictable and there is someone to handle repair and maintenance expenses, plus you can move without penalty whenever your lease ends. 

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However, if your landlord decides to sell the property; it also means you have to move suddenly, or worse, they could just bump up the rent to more than you can afford.

Renting might be affordable but it doesn’t give you the freedom to do whatever you want in the interior and exterior of the property.

Another disadvantage of renting is the possibility of unpredictable rent increase each time the lease is up for renewal. Furthermore, rent increases can be steep if you’re living in a strategically located property.

A mortgage calculator can help you decide

If you can’t decide which option is best for you, you can use this free online rent or buy calculator to help you out. The result from this tool will enable you to quickly decide if it is likely to make more sense to rent or purchase a home.

Using the basic tool will show how much home you can afford to buy while paying a monthly payment equivalent to your current rental payment.

To use the calculator, fill out the following details:

1. Mortgage Details

• Monthly rent payment (used as a total monthly home expense)
• Mortgage term in years – can be availed up to 30 years
• Annual interest rate (APR %)
• Private mortgage insurance (PMI %) – can be avoided by paying at least 20% down payment

2. Ownership Expenses

• Annual property taxes
• Annual Homeowners insurance
• Monthly HOA fee

The result will show you three scenarios when you pay 0%, 10%, and 20% down payment. You can use the values to decide whether you can afford to buy a home in your current financial situation or you’d be better off renting.

Epilogue

Always remember, owning doesn’t always make more sense, and renting is not always a way to save. Before buying, you need to weigh the risks involved as getting a mortgage often requires using a large amount of financial leverage. 

The decision to rent or to own is not just financial but also emotional so consider the pros and cons of each to figure out which is best for you.

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