Monday May 22, 2017

Should I Rent or Buy a Home?

Renting vs. owning is one of the big questions in life.  Actually, for many people it’s not even a question, but maybe it should be!

Many of us have been told our whole lives that you have to own a home—that it increases one’s personal worth and is a good investment.  We’ve been told that renting is “throwing money away,” and that it is illogical to let all that money slide down the drain.

This doesn’t really match up with reality though, does it?  How many people on your block are trying to sell their homes?  How many have been foreclosed on?

How many have gone flat out broke trying to own their own homes?  At that rate, how many people actually do own their own homes, paid up in full?  Not too many.

In terms of financial expenditures, paying the monthly mortgage, interest, insurance, and associated fees on a home to own is going to be about twice as expensive as paying rent on a home.

Even with the tax savings you get for buying a home factored into the total cost, this is the financial reality.  And for the first few years, 80% of your payments will be going toward paying off the interest on the loan, not toward paying off the loan itself.  There is no return on this money (or on the insurance and other associated costs), and on a standard 30 year fixed loan it can take 20 years before the money you are “throwing away” while buying a home is less than that a renter would be “throwing away.”

So does that mean buying a home doesn’t make sense?

For many people, it really doesn’t.  If you’re going to stay in it for a long, long time, and you’re sure of that, it might make sense.

If you’re planning to move again in five years or even ten though, renting will probably save you a lot more money.  All the money you save you can invest in something which pays a lot more.  Even if you don’t feel comfortable managing your own investments, you can always consider a mutual fund.

With all the money you save up not buying a home when you’re young, you could buy one outright when you’re older, or even just buy land and build a home on it.

Buying a home

Buying a home may be right for you, but for many people it’s just not the most feasible idea.  The good news is that if you do know you want to own a particular home for life, many of them are at rock bottom prices these days, and it’s a great time to get in there and scoop one up.  Make sure that you go with a fixed rate mortgage if you do, since those adjustable ones tend to balloon and land many people in debt.

If you’re most people though, buying a home may really not be the best use of your money.  Take a good look at what’s been going on around you.

The Department of Housing and Urban Development (HUD) estimates that a full quarter of homeowners are “underwater”—that means they’re in an investment which is losing money.  Their homes are now worth less than they originally paid for them, and many of these people are now further away from owning their own homes than they were before they decided to purchase them! 

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