POST TAGSFirst-Time Home Buyer
Blog posted On July 15, 2021
Buying your first home is an exciting transition, but it’s not always the right time for every renter. Sometimes it depends on timing, other times it depends on the responsibilities and costs that come with buying a home. To help you determine which is right for you, here are some factors to consider.
First, consider the main differences between renting and buying.
Buying a home will likely be one of your largest investments. Aside from the upfront costs (down payment, closing costs etc.) and future mortgage payments, you will also be required to take care of any ongoing costs like maintenance, property taxes, and insurance. Renting, on the other hand, typically requires lower upfront costs and fewer ongoing costs. The landlord will be responsible for any maintenance and taxes, but you will likely have to pay renter’s insurance – which can be about $15 per month. Remember, when you’re paying a mortgage, you’re building equity, that you could eventually use later. When you’re paying rent, it’s your landlord’s profit.
When you pay rent, you’re paying off someone else’s mortgage and helping them build equity. The only money you might see again is your security deposit. When you own a home, you build equity. Equity is a huge contributor to your overall net worth. Plus, if you build enough equity in your home, you can withdraw it through a cash-out refinance and use it toward other investments like a home renovation or consolidating debt. Another one of the wealth benefits of homeownership is the tax break. Though homeowners are required to pay property taxes and mortgage interest, both of these costs can be deducted from your federal income taxes if you itemize your deductions.
Renting comes with less responsibility. Typically, your commitment will be a year-long lease and your landlord will be responsible for any maintenance or repairs. When you buy a home, you will sign a mortgage between 15 and 30 years. Though you can sell your home before the end of your mortgage, you will likely want to keep it for at least five years in order to cover the previous purchasing costs and future selling costs. Additionally, you will be responsible for home maintenance, yard maintenance, and other costs such as homeowner’s insurance and property taxes.
Renting and owning offer different types of flexibility. With renting, you have much more flexibility to move as you please. Though some landlords have a lease-breaking fee and policy, it’s much easier to break a lease than sell a home. However, when you rent, you have less control over the look and design of your home. There are usually rules prohibiting you from painting, renovating, or even just hanging shelves. Homeownership allows you the freedom to adjust the space and make it your own.
Can you determine which is right for you?
Once you’ve weighed out the differences between renting and buying, ask yourself these questions:
Before buying a home, you will want to make sure you have a stable income, a reasonable down payment, savings for home repairs, a healthy credit score, and a manageable amount of debt. Then, ask yourself whether or not you’re ready to settle down in one location. Will your job require you to move? If you have a partner, will their job require them to move? Finally, ask yourself why you want to buy a home. Is it just to say you own a home? Make sure that you are buying for the right reasons.
Making the transition from renting to buying can be intimidating, but there are several resources that can help you get started. You can also contact us directly and we would be happy to help.
Sources: The Balance