For years, part of the American Dream has been to own a home, but is it the right decision for you and your family right now?
Both have pros and cons and highly depend on your individual situation. Let’s start by asking a few questions.
- What can you afford?
- How much savings do you have?
- How long do you plan to stay in the home?
- Do you want to be responsible for repairs/maintenance?
- What are your financial, career and family goals?
Once you thoughtfully considered these questions you can then begin comparing renting versus buying a home.
The Costs:The first consideration in the rent vs. buy decision is often how much each will cost.
Rent: If you rent a home, your monthly costs are generally fixed for the term of the lease. Your monthly rent may or may not include utilities such as electric, gas, cable or internet. Most leases require the first month’s rent, last month’s rent and a security deposit equal to one month’s rent in advance. Also, when you’re a tenant, your landlord is generally responsible for fixing any issues with the property.
Buy: When buying a home, most mortgage lenders require a down payment between 3 percent and 20 percent of the home’s price. Some loans may have a lower threshold, but down payments below 20 percent will mean paying for private mortgage insurance, or PMI, which is an additional monthly expense. You’ll also pay closing costs, which average 2 percent to 4 percent of the home’s price. You’ll also need to pay for utilities, maintenance, and repairs, whether it’s a few bucks to fix a leaky faucet or thousands to replace a roof.
Other Considerations: There are more than only costs to consider when trying to figure out what is best for your situation. Buying may build equity and credit, provides more stability, and comes with possible tax benefits. It also means extra expenses if something goes wrong. Renting gives you a bit more freedom to be mobile, comes with fewer upfront costs and no repairs to worry about. However, you are subject to the whims of your landlord, you won’t build equity, and there are no tax benefits.
If you are wondering if your finances would be best served renting or buying a home, let the experts at Broussard Poché, LLP help you weigh the pros and cons.