Renting vs. Buying a Home

The debate over whether it is better to rent or buy a home was fueled at the turn of the century by home builders pushing "The American Dream" and lenders, who until the financial meltdown in late 2007, made it increasingly easier for consumers to qualify for low downpayment sub-prime loans. These days, buyers with good credit can qualify for mortgages and first-time home buyers can receive help in the form of grants from local agencies for the balance of their down payment. Still, the question of whether it is better to rent or buy a home remains largely a personal decision.

General Economic Conditions

The general economy has affects confidence when consumers are considering a home purchase. Fluctuating interest rates and real estate values and job security concerns will determine whether the environment is right for considering a purchase.

The Advantages of Renting

Renting a home or apartment gives people time to grow accustomed to a new location, offers them the freedom to move quickly if career advancement opportunities open up elsewhere and is cheaper initially compared with the closing costs and downpayment often required for a purchase. Apartment and condominium complexes often offer recreational amenities, and renters do not have to worry about property maintenance, property taxes or homeowner's insurance.

The Advantages of Buying

Home ownership allows buyers the opportunity to accumulate equity by paying down principal and through possible real estate appreciation. In times of rapid market appreciation, financial gains can be staggering. Arguably, with the tax deductions that are allowed for mortgage interest, owning is not much more expensive than renting in flat or rising markets, especially in times of low interest rates. The greatest appeal to real estate ownership might be the pride of ownership and freedom to make changes to your property if desired.

Weighing the Finances

Whether renting or buying is the better financial decision is best determined based on a consumer's own set of circumstances and current market conditions. Websites offer calculators to help crunch the numbers. An analysis of "rent vs. buy" in a moderately appreciating market shows that it takes five to six years for a buyer to gain the advantage.

Another Form of Comparison

Another way to measure rent versus buy is to compare the annual real estate appreciation or depreciation rate with the annual increase or decrease in rental payments.

Finding the Best of Both Worlds

Consider a rent-to-own arrangement if you are undecided about the neighborhood, your job, worried about prices falling, need time to improve your credit or accumulate funds to buy, or if you have started a new relationship or ended an old relationship. Rent-to-own, or a lease-option, gives you time to make the right decision.

Preparing for Home Ownership

Consider your long-term goals and your lifestyle. If you are happy renting or feel secure not having to maintain a property, then maybe renting is right for you. Or renting might be a prelude to when you feel personally and financially secure enough to take the plunge into home ownership.

References

• How to Buy a House

Resources

• Buy or Rent Caluculator
• Rent vs. Buy