To rent or to not rent? That is the question…
Most every American will have to face this dilemma at one point in their lives. For some, it’s a few years after landing that generously-paying dream job. For others, it’s after marriage, kids, and settling into the city of their liking. Once faced with the decision, it’s all about timing, location, and a few other important factors.
When weighing the massive decision to either buy or rent your next home, there some questions you need to ask yourself:
How much savings do you have and what’s in your budget?
How long do you plan on living in the home?
What are your career and family goals?
Where do you want to live?
Do you want more stability or flexibility when it comes to moving?
In our three-part series, we will look at all the factors to consider when making this life-altering decision. The first (and also most likely the biggest) factor to look at is the costs associated with each. Below is what you can expect in terms of expenses – both recurring and one-time.
Monthly costs of renting
Generally, if you rent, your monthly costs are fixed for the duration of your lease. However, landlords have the ability to increase your rent when the lease ends or sell the property, so you may have to move locations. A big plus for renters is usually the landlord is financially responsible for fixing any maintenance issues with the property. Things to consider are if your monthly rent includes utilities such as electricity, gas, water, trash, or internet and if the unit includes a washer, dryer, or is furnished.
Upfront Costs:
Security Deposit
First Month’s Rent
Nonrefundable Deposits
Moving Costs
Recurring Costs:
Monthly Rent
Renters Insurance
Utilities
Laundry (unless included)
Monthly costs of buying
If you buy a home, most mortgage lenders require a down payment between 3 to 20 percent of the sales price. Some government loans will require less but down payments will need you to purchase private mortgage insurance (PMI). In addition, you’ll also have to cover closing costs, which average 2 to 4 percent of the home’s final price. On top of these, there are interest rates, principal outlays, property taxes, homeowners insurance, and sometimes homeowners association dues to consider. Last but not least, when purchasing a home over renting a home, you will be responsible for utilities and maintenance repairs.
Upfront and Closing Costs:
Earnest Money
Down Payment
Home Appraisal
Home Inspection
Property Taxes
First Year’s Homeowners Insurance
Closing Costs
Recurring Costs:
Loan Payments
Property Taxes
Homeowners Insurance
Private Mortgage Insurance
Utilities
Maintenance
One-Time Costs:
Furnishing
Moving Costs
Repairs
Renovation
To help you figure out how much each option will cost for your unique situation, use Zillow’s free Rent vs. Buy Calculator.
We hope that this series will act as a guide and provide enough knowledge to make your housing decision easier. If you have any questions on any of the above terms or comments about the article, please feel free to contact our team of accredited professionals at (858) 259-2960 or visit our Contact page. Be sure to check in next month for Part 2 of our 3-part series on Renting vs. Buying, when we dive into timing and location.