When the pandemic hit the U.S. earlier this year, many worried that the housing market would be drastically affected. After all, millions of Americans have been laid off since the outbreak of the virus and many businesses shuttered after stay-at-home orders were put in place.
Despite the hit to our economy, housing prices in the United States haven’t noticeably fallen. While buyer demand did drop initially, so did supply, keeping house prices relatively steady. There are also a number of loan forgiveness programs out there, hoping to prevent foreclosures due to the economic stress. So technically, we don’t even know the long-term impacts this pandemic will have on the housing market in the near future.
Regardless of what’s happening in the market, the decision to buy a house should be a sound one. If you’re wondering whether to buy a home in the current market or considering renting as an option, there are great arguments for either option. When making a decision between the two, it all comes down to your needs, finances, and lifestyle goals.
To help you consider each option and determine if buying a house is a sound financial decision for you, the Guiding Wealth team is here to outline the benefits of renting a place and buying a home.
The Benefits of Renting a Home
The benefits of renting include flexibility, low costs, and fewer home responsibilities. Renting a place would allow you to move if you want to or need to in the immediate future.
Maybe you’re concerned about the stability of your current job and you’re unsure of what your income will be like. You might be starting a second career that would require you to move, or choosing a different place to retire to instead. Renting may be the better option in all of these cases, since you wouldn’t be locked into a house, neighborhood, or city for the next few decades.
Compared to buying a home, renting is also more affordable on the front end, as it comes with fewer fees. You’ll pay renter’s insurance and a security deposit, and monthly bills such as utilities, internet, and water. But you don’t have to put down a down payment on a home or pay property taxes, which usually average around $2,700 a year.
When you rent, you also don’t have to pay if a pipe bursts, your roof gets damaged in bad weather, or your air conditioning system breaks down. Your landlord is responsible for fixing any issues, as well as regular maintenance.
The Downsides to Renting Your Next Home
There are a few downsides to renting. It may be an attractive option for those with poor or low credit, but monthly rental payments tend to increase after every lease term. If you change rental homes every year or few years, you’ll need to apply to rent for every new place. Many people may not like the uncertainty and inconsistency of renting.
Equity is another consideration: When you rent, that money “goes away for good.” While there aren’t always guarantees that you will be equity if you buy a home, people do enjoy knowing that their money is at least going toward something they can own at the end of their loan.
That leads us to the benefits of home-buying…
The Benefits of Buying a Home
If you’re in a good financial position to invest in a house and you like having control over your home, buying may be better for you. Buying a home comes with a few financial benefits and gives you a sense of ownership, knowing that the property is yours to do with as you like (HOAs and zoning issues notwithstanding).
When you buy a home, you build equity as your home value increases over time. What you pay towards your mortgage every month increases your equity (and your net worth), and you can use that equity down the line if you want to sell your house and buy a different one. You can also use equity to get a reverse mortgage in retirement, or a home equity line of credit.
Having a mortgage can improve your credit in two ways: your mortgage is added to your credit mix, and a mortgage loan diversifies your credit. With a fixed-rate mortgage, you’ll also know what you’ll pay monthly towards your loan, which isn’t the case with monthly rental payments.
Control over your home
One of the best things about buying your own home is having control over it. If you want to change the landscaping, paint the interior or exterior, completely renovate or add rooms, it’s your decision. You can have pets or rent out rooms to tenants, too. You don’t need permission from a landlord; your home is yours to do what you want with it.
The Downsides to Buying a Home
Of course, buying a home is a fairly expensive, long-term commitment. There isn’t as much flexibility in terms of expenses, and you can’t easily move if something changes in your life. It can be difficult to sell a house if the market is volatile or in decline, as many people who owned during the 2008 market crash can attest. The home-buying process can take longer than expected as well, if house supply is low. You also need to be in a secure financial position to buy a home and cover all the fees that go along with that process.
Still Not Sure if You Should Rent or Buy? A Financial Advisor Can Help
Both renting and buying a home will impact your finances, and knowing which one is best for you now and in the future can be complicated. If you need help deciding, a professional can give you another perspective. Contact a trusted financial advisor at Guiding Wealth for clear and concise guidance on renting or buying a home. We’ll help you come to a decision about your housing options, one that helps you consider your long-term goals as well as your short-term housing needs.