Traditionally, when a young adult leaves home, their first home away from home is an apartment. But, modern trends have millennials remaining in their family homes for several years longer than usual before finally heading out on their own, with the goal of home ownership ultimately luring them away from the nest.
If you are on the cusp of leaving home but you aren’t sure whether you should rent or buy, then this blog post will help you make the right decision. Before you can choose, however, you’ll need to know the pros and cons of renting vs buying a home.
The Pros and Cons of Buying a Home
The most common issue facing first time homebuyers is typically money. It takes a lot of up-front money to buy a home. While you may be able to secure a mortgage with a down payment of just 3.5% of the purchase price, any less than 20% down will require you to pay private mortgage insurance on the loan, so this needs to be considered.
Closing costs can also be expensive because they include all the fees associated with buying the home, including the appraisal fees, inspection costs, property taxes, insurance, credit report fees, loan origination fees, and more.
Then there are the recurring costs of owning a home. Such expenses include:
- Loan payments
- Insurance premiums
As a homeowner, you’ll also be 100% responsible for anything that goes wrong with your home. Sure, insurance may cover some major problems, but depending on your deductible, you will still be out a sizable sum. And, insurance doesn’t cover things like having a new roof installed or a new HVAC system put in, both of which can cost tens of thousands of dollars.
On the positive side, owning a home is an investment that traditionally pays off. Over time, you’ll build equity in your home. You also get to enjoy more freedom when you own vs. when you rent. More often than not, you can do whatever you want to your home, barring any local zoning limitations or regulations. You will also be able to take advantage of certain tax benefits of owning a home.
The Pros and Cons of Renting
Renting requires substantially less money up-front. The most you’ll need is first and last month’s rent plus a security deposit. Most states limit security deposits to one and half months’ rent. If you have pets, you’ll most likely have to pay deposits for them, as well.
Your monthly recurring costs include your rent payment, pet rent (if applicable), renter’s insurance, and utilities. Depending on the rental, the landlord may even pay certain utilities. You may also have to pay to do your laundry if the rental doesn’t come equipped with an in-apartment washer and dryer.
On the plus side for renting, you aren’t responsible for things like repairs or maintenance, and it’s much easier to move if you don’t like where you’re living. Credit requirements also tend to be less strict. But renting doesn’t build equity like owning does, you don’t get any tax benefits, and you have less control over your future costs (i.e., rent increases).
Renting vs Buying – Which Is Right for You?
Choosing between renting and buying is a completely personal choice. What works for one person may not for another. Take the time to think about what you want from the place you are going to be calling home.
Do you want it to simply be a place you lay your head down at night, or do you want it to be a potential financial investment? Do you want the risk/reward factor of homeownership or do you want fewer responsibilities? There’s a solution for everyone out there, so find yours!