Rent Vs Buy

Renting vs. buying a home is a big decision, and there are pros and cons to each option. In fact, a higher percentage of U.S. households are renting than at any point since 1965, according to a Pew Research Center analysis of U.S. Census Bureau data released in 2016.

For some people, renting comes down to what they can afford at the moment.

“I was a long-term renter because I wanted to wait to buy until I could afford to stay in my current neighborhood,” says Atlanta resident Jennifer Walker, a public relations executive who bought her first home this spring. “I didn’t realize that there were affordable options.”

For Walker and other aspiring homebuyers, working with a savvy real estate agent and lender can help them realize they’re ready to take the plunge.

The answer to the rent vs. buy a home debate isn’t so cut and dried. Here are five questions to ask 

• when considering renting vs. buying:
• What can you afford?
• How long do you plan to stay in the home?
• Do you want stability or flexibility?
• Can you afford to be responsible for home repairs/maintenance?
• What are your financial, career and family goals?

Renting vs. buying a house: Calculating the costs
There are different costs associated with renting and buying. Using Bankrate’s rent vs. buy calculator helps you break down some of these expenses.

Most rental properties require a security deposit, which protects the landlord against damage caused by the renter. You’ll usually put down the first and final month’s rent payments when you sign a lease. When evaluating a lease contract, ask if your monthly rent includes utilities, such as water, electric, gas, cable or internet.

For homebuyers, one of the biggest ongoing costs of homeownership is your monthly mortgage payment, which includes the loan’s principal and interest amounts. Your payments can go up or down over time if your loan is variable rate or your property taxes and homeowners insurance premiums change. If you put less than 20 percent down, your lender will typically require you to purchase private mortgage insurance, or PMI, which drives up your monthly payments, too.

Be prepared for some of the hidden expenses that come with homeownership that catch many first-time homebuyers off guard and can lead to buyer’s remorse.

“During the process, the buyer will need to pay for a home inspection and for any quotes for repairs needed from contractors. They will also put down at least 1 percent of the sales price for earnest money,” says Michelle Hopson, a sales agent with Compass Real Estate in Dallas.


Having a sizeable down payment — anywhere from 3 percent to 20 percent of the home’s purchase price — is expected. If you’re purchasing a property in a homeowner’s association, or HOA, you’ll need to factor in monthly HOA dues, which can cover services like landscaping, exterior maintenance and community amenities.
Differences between renting vs. buying

Renting vs. buying a home isn’t a matter of ownership. Here are other key differences between the two options.
Buying a house can build equity

Homebuyers can capitalize on the equity their home accumulates over time. That means if the home’s value goes up, you’ll cash in on the higher value when you sell. Plus, with a fixed-rate mortgage, you won’t have to worry about rising rents.

“Interest rates are so low now,” Hopson says. “That means borrowing money is very inexpensive today. In Dallas, where rents are high, it can almost be as affordable to purchase as to rent in many parts of the city. If you can qualify for a home and build some equity, that ultimately makes more sense than renting.”
Tax implications

Another factor for buyers to consider is whether you will be able to deduct the mortgage interest at tax time. Tax laws allow those who itemize their taxes to write off their mortgage interest payments. However, not everyone is eligible to itemize deductions, and changes to the tax laws in 2018 means that more people won’t be able to deduct as much of their mortgage interest and property taxes as they used to.
Home maintenance costs

Homes need repairs and maintenance over time, and when you’re renting, those costs are generally the landlord’s responsibility. For instance, in an apartment, if the HVAC system or refrigerator breaks, the landlord has to fix it. On the other hand, as a homeowner, you’ll be on the hook for those repairs and ongoing seasonal maintenance, and they can add up fast.

Katie Schanck, a Realtor with Keller Williams in Atlanta, advises her clients to factor in these costs when evaluating if they can afford to purchase a home. She encourages buyers to carefully review the seller’s disclosure and get a home inspection to be aware of potential red flags.
Want flexibility? Rent

If you’re moving to an unfamiliar city, have an unstable job situation or don’t know what neighborhood will feel like home, renting for a period of time can be a great option.

“During that rental period, people really get a sense for what they like or don’t like, and we can also start exploring different purchasing options during that time,” Schanck says.
Consider your life stage and goals

While no one has a crystal ball, it’s important to evaluate your current life situation and how much it’s likely to change in the immediate future.

“I recommend clients who are going through life changes, like divorce or downsizing, to rent as a way to decompress before making a large purchase that may not be right for their new lifestyle,” Hopson says.

Schanck agrees, encouraging her clients to think ahead.

“For clients who have a changing personal situation, such as getting married or planning to have a child soon, I encourage them to look at properties they’re not going to outgrow quickly,” she says. Another consideration: Can you afford a home that will fit your lifestyle in the next few years, or will a tight budget limit your options?

“It may be better to wait or rent for a little while until they can afford the home they can live in for some time or grow into with their family,” Schanck says.
Bottom line: Choose what’s right for you

It may be helpful to talk with a trusted real estate agent to help you think through the decision to rent vs. buy a home. Here’s a list of pros and cons to help you on your way.
Renting vs. buying a home: A comparison
Buying

Advantages
May build equity and credit
No landlord to answer to
More stability (especially with schools)
Possible tax benefits
Can improve or upgrade home to your taste

Disadvantages
Requires substantial money, paperwork up front
Could lose money if home values decline
Extra expenses beyond mortgage payments
Rising home prices and low inventory in many markets
Responsible for repairs, remodeling
Renting

Advantages
Fewer upfront costs and paperwork
Freedom to be more mobile
Not responsible for maintenance, repairs
No need to worry about falling home values
Build credit (if your landlord reports rent payments to the credit bureaus)
No property tax bills

Disadvantages
Landlord can raise rent or sell the property
Choices may be limited depending on vacancies
Might have to move multiple times
Don’t build equity
No tax benefits

COVID-19: Should you buy a home now, or wait?

It almost goes without saying that COVID-19 has had a far-reaching impact on the Canadian economy and healthcare system in the first half of 2020. As expected, the spring housing market was much cooler than 2019, with the Canadian Real Estate Association (CREA) confirming that May 2020 recorded the lowest volume of sales in May since 1996. Despite the significant drop in sales volume due to the pandemic, though, national home prices remained relatively stable. 

After a quiet April, market activity began to pick up in local housing markets across the country in May: more buyers resumed their home searches, and more sellers began to list their homes. With more home buyers and sellers hopping off the sidelines, housing competition is starting to heat up in many regions. In Toronto and Vancouver—Canada’s largest markets—demand and supply were evenly matched in May, whereas in Southern Ontario markets like Ottawa and Hamilton-Burlington, buyers faced ever fiercer competition for available homes than last year. In Edmonton and Fraser Valley, B.C., on the other hand, demand and supply dynamics gave buyers in May more leverage than sellers. 

Given how swiftly conditions have changed and continue to evolve in housing markets across the country, prospective home buyers may be wondering: Is now a good time to jump into the market?

Perhaps. With interest rates at historic lows, if you are able to buy and hold a home for the medium to long term, this might be a good time to buy. Here are all the factors you should consider as you make your decision. 

Account for your finances and your lifestyle needs

For many Canadians, finances are just one part of the story, and the decision to buy a home often goes beyond the dollars and cents. To put it simply, people need to make changes in their lives and move—regardless of whether there is a pandemic or not. 

If you have done the math and are confident about your financial ability to carry a new home, this is a great opportunity to take advantage of low interest rates. 

Consider why you want to buy in the first place. Perhaps you’ve had a relationship or family change; a divorce or a baby on the way are common reasons people choose to move. Alternatively, do you want to be closer to family, in a good school district, or have better transit access? If you started planning a move before the pandemic, consider whether and how COVID-19 has altered these priorities. 

Once you’ve determined why you need to move, consider how your lifestyle needs may evolve. After all, you will be living in the home you purchase for at least a few years, so you need to think about whether the home you buy is a fit for your needs both today and tomorrow. If you can find what you want, in the location you desire, and are comfortable living there for at least five years, take the leap.