Tenant or Homeowner? What is best for my current Situation? 

With so many homes reduced in value over the last several years, it’s more important than ever to assess your overall goals and needs for your investment in your home. Some say “you’re throwing your money away by renting” or “it’s always better to be a homeowner”,  but you must ask yourself what your goals are over the next year, 5 years and even 10 years and further to determine what is truly best. Also, the type of financing available to you, should be a major player in your decision making process. This is especially true for new college graduates.  

Looking at the numbers – www.txmortgagebank.com

While home ownership provides security, you must decide whether investing your money in a home purchase rather than simply purchasing other available assets such as mutual funds, your own business, other types of bonds, ex., makes more sense. With the recent decline in home values, one could argue it’s simply too risky to buy a home when so many homes have lost value over the last couple of years, Yet one could make the same argument that rents have increased over the last couple of years and it may be less expensive to pay a mortgage rather then rent to the landlord.  

Click here to use our Rent vs. Buy calculator to help with this determination:

 In 2004, The US census Bureau reported that 58% of American families could afford to purchase a modestly priced home in the state which they lived. That is they could afford to purchase a home with a 5% down payment or purchase the home cash. Today however, we face a larger unemployment rate, but much lower housing costs. This makes the number of qualified American families less in existence, but much more affordable for the families or individuals that may be able to afford the down payment or monthly payment.  Programs such as the USDA Rural development program, the various city and state down payment assistant programs, the Home Path and FHA mortgages mixed with historically low interest rates are making homeownership more affordable then ever.

 Other Factors

Of course buying a home isn’t strictly a financial decision. For lots of people, the thought of constantly worrying about losing the security deposit every time we hammer a nail or paint a wall isn’t particularly appealing.

Here are some other things to consider before making a home purchase:

To simply put it, first and foremost find a neighborhood and a home that you will  like and that fits your lifestyle. I’ve met lots of people over the last several years that felt obligated to buy just because they could afford it, however were unsure of their goals for the next 10 years and wanted to buy because they “heard it was a good investment”. This may be true if the numbers say so and you purchase a fixer upper, or update an older home. With the increase in foreclosures over the years, banks have strengthened their stance on negotiations and not budging on price nearly as much as they did at the beginning stages of the housing crises.  

It’s true you can get a good deal on a foreclosure, but you must have a realistic picture of just how much equity you may be walking into. What kind of costs will you incur at purchase? Are any repairs needed? And most importantly what have homes most similar to the subject property sold for in the recent months leading up to the home purchase. It’s vital you research comparable properties to really assess how good of a deal you may be getting. Many new buyers on the market today simply think just because it’s a foreclosure it’s below market value. This is simply not true. It’s extremely important to review the comparables in the neighborhood, or immediate area for rural properties.

When Renting is the best option

 In many cases especially for college graduates renting makes much more sense than jumping into a long term financial commitment. I think that’s really the key, recognizing and being able to commit long term. I feel that a big mistake many homeowners make is assuming that they will buy a home and sell it in a few years for a huge profit. Even though this can happen and hopefully for you someday, I always recommend when purchasing a home, be prepared to keep the home for at least 10 years. If keeping the home that long doesn’t sit well with you or simply doesn’t make sense, it’s probably in your best interest to just rent for the time being until you have no problem being in the same place for that long.

Also how do the average rents in your area compare to what a mortgage might cost you?

There are some areas where there is a major difference. For instance Trulia.com conducted a survey last year comparing list prices and rents in the 50 biggest cities here in the US finding areas like New York topping the list with renting being much less expensive then buying. Also Dallas came in as the tenth top city to rent versus buy. This is of course using the trulia.com rent versus buy index and doesn’t take into consideration the up front costs associated with purchasing and a larger down payment making a much lower monthly mortgage payment.

Recap – Pros and Cons

Renting Pros

–          Low upfront Cost – A deposit and a month or two of rent is normally all that’s needed, while a down payment could be significantly more.

–          Less responsibility – Your landlord takes the responsibility if something breaks or needs repair. Not only fixing or maintaining the home requires money and skill, but you must also invest time to get it done. When renting, the landlord gets this job.

–          Good Credit not a must – When buying a home you must have good credit; however when renting, less than perfect credit isn’t normally an issue as long as you can show steady income.

–          Flexibility – One of the best parts of renting is the flexibility of moving on much shorter notice. Normally renting comes with just a year contract at a time and even that can sometimes be terminated. So when you get that promotion you’ve been working for you can easily pick up and go.

 Homeownership Pros

–          Build equity – When renting, payments are simply out of pocket expenses. When buying the home you’re building equity and wealth for the future. A mortgage is a built – in savings plan as your home maintains or gains value.

–          Tax incentives – When it comes time to do the taxes you’ll enjoy being a homeowner the most. You may qualify for government rebates or incentives.

–          Low Mortgage rates – Currently rates are at an all time low and could mean you may never find a less expensive time to purchase.

–          Pride of home ownership – Owning your home affords you the freedom to paint the walls whatever color you’d like, plant trees; add a patio, whatever floats your boat. While renting is another story, you may not even be able to paint the walls.

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