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Buying vs. Renting in Today’s Market – Should You Buy or Wait?

What you'll learn: Whether you should continue to rent or buy

EXPECTED READ TIME: 8 MINUTES

The housing market goes through ebbs and flows. Sometimes, it is better to rent, but most of the time if you are going to stay in a home for more than two years, you will be better off buying. There is a lot that goes into the decision to buy a new home. You must consider your lifestyle, plans for the future, and financing, among other things. When there is a hot housing market like we have seen for the past few years, the rent or purchase choice becomes more difficult to make.

If homeownership is right for you, then there are good reasons to buy, which include wealth building. Let’s look at where we stand now and how to make a decision.

Is it Better to Rent or Buy in 2022?

We know this is the question you want to be answered, so we put it first. Home prices continue to climb, and this rate may slow with the increase in interest rates, but rising rates mean that your potential mortgage payments are climbing as well. The short answer is that it is still better to buy now, with a few caveats. This assumes that you are financially stable and ready for the purchase, and you do not have any plans to move for at least a few years. If you are considering buying and still not quite sure if it is right for you, you should consider these things.

Renting Vs. Buying a House, Pros and Cons

To rent or to buy makes for an intimidating question, and not easy to answer with a yes or no. There is no universal answer, everyone is in a different position, and the fact that rates and real estate constantly change, even on a local level, makes it more difficult. It is best to cover the pros and cons, and then you can decide which are more important to you.

Home Buying Pros

Your payments build equity - as you pay down your mortgage, the home becomes more yours with an increase of equity.  You have something of value that you can build from or borrow against. When your rental lease is up, you have nothing to show for it.

Potential Tax Deductions - If you itemize, the interest that you pay for a mortgage can be deducted from taxes. You can not deduct your rent payment from your taxes. Be sure to speak with a tax professional to determine if you qualify for any potential deductions.

Forced Savings - Some people have trouble saving, and if they must pay their mortgage, they are building wealth; if you are renting, you have to save on top of the rent paid out (if anything remains).

Increased Stability - When you rent, and the lease is up, the landlord has an option to raise the rent or even end the contract entirely. With an owned home, if you have a fixed-rate mortgage, the principal and interest payments will never go up.However, keep in mind that taxes and insurance are subject to fluctuate, potentially impacting the total payment.

Pros of Renting

Cheaper Payments - You can usually find rentals that will cost you less per month than a mortgage.

No property taxes or maintenance costs - You will have additional costs that are required with homeownership that you do not have when renting.

No Down Payment Requirements - beyond your deposit, you don’t have to save money to move into a rental. You just need a few months worth of rent. When purchasing, you will, at minimum, need 3 to 3.5% and up to 20% of the home’s price for a down payment.

Easier to move - When you rent, if you do not like the place, you are not stuck with it for longer than your lease. You can move once the lease expires, or if you are willing to forego your deposit or work out a deal with the landlord, you can move sooner.

Is It Cheaper to Buy a House or Rent an Apartment?

The National Association of Realtors (NAR) looked into the question of  buying vs. renting, and they used the following assumptions:

  • A renter starts paying rent of $800 a month, and this rent price increases 5% every year.
  • A buyer purchases a $110,000 home and has a mortgage of $1000 a month with a fixed rate principle and interest payment.

After six years, the rent will be higher than the mortgage. However, with the tax savings (if itemizing) that can be seen with homeownership the homeowner’s payment is less than the renter’s lease payments after only three years. This calculation does not take into account increases in the value of the property or the equity that is built up by paying down the mortgage—just the cash out the door in payments.

The Differences Between Renting vs. Owning

Choosing between renting or buying will ultimately depend on your personal goals, lifestyle, and financial situation. If you don’t have a good credit score or insufficient down payment, you have to rent till you have corrected these. But once these are under control, your lifestyle comes into play. Both renting and buying provide a roof over your head, and you need regular income to make the required payments.

Renting will provide you with flexibility, predictable monthly expenses (on a length of your lease basis), and the responsibility of repairs and unforeseen costs on the shoulders of the landlord.

Homeownership provides tangible and intangible benefits, a sense of stability for the long term, a pride that comes with homeownership, and the short and long-term financial benefits of tax deductions and building equity.

Renting does not mean you are wasting money, and homeownership does not guarantee wealth-building (prices have and do go down.) Choosing what is suitable for you right now is the key.

The Answer May Depend on Where You’re Buying

Remember, real estate is local. Different locations are at various stages of a real estate life cycle, so it is essential to work with real estate professionals that know the area where you are living. Homeownership is usually more affordable in suburban/rural areas, and in some cities, it may be cheaper to rent. Tools such as the ATTOM report can help determine whether or not owning or renting is better at this time in your area. In some cases, you could take a down payment and put it in the stock market or other high yield investment and do better than with a home purchase. So do your research.

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