Ten Reasons to Rent Rather Than Buy

Don’t feel left out if buying just isn’t for you (now or ever). Tenancy can
make good sense for a multitude of reasons…

1. All you typically need to get into a rental is first and last month’s rent and a security deposit – much less than the average down payment and closing costs.

2. Want to come and go as you please? Renting offers the ultimate in mobility.

3. You don’t have to worry about the trouble and expense of major maintenance. If the roof leaks or the building needs a fresh coat of paint, you’re off the hook.

4. It may cost less per month to rent, even with the tax benefit of owning.

5. There is no guarantee that your home’s value will appreciate – and you could make more money in another investment.

6. You don’t have to bother with property taxes.

7. Your landlord may cover some or all of your utilities.

8. If your credit isn’t perfect, it’s often easier to rent than buy.

9. Like any other investment, real estate is volatile. If you lie awake at night wondering if you may lose your life’s savings, you may be better off renting.

10. You could have the use of a pool, tennis courts, and social rooms included in the cost of your rent – out of range extras for most homeowners.

“You are a king by your own fireside, as much as any monarch in his throne.”

–Miguel de Cervantes

Buying a home is a major commitment. It’s a bit like getting married (on a smaller scale): you’ve got to be ready and you have to find the right “one.” And, like marriage, homeownership is a dynamic experience that requires a tremendous amount of care and attention.

If you are ready to shift from renting to buying, you’ve got some legwork to do. Here’s how to prepare:

Credit matters. Quite simply, the past can either haunt or help you. If your debt-to-income ratio is too high, financial institutions will likely be wary of extending you another loan. If you have had problems repaying past obligations, a lender will have trouble trusting that you will pay your mortgage on time.

You can improve your credit score (a model that helps lenders assess risk) in as little as six months. Here’s how:

  • Pay on time, every time
  • Pay off old outstanding debts
  • Keep your balances significantly lower than your credit limit
  • Have at least one account for longer than two years
  • Limit your credit applications

Understand what you can afford. Most lenders require that your total housing costs not exceed about one quarter of your gross monthly income, and total debt payments per month (including the mortgage) not surpass 36% to 38%. In real terms, this means that if you owe no consumer debt and have a household income of $75,000, then $1,750 in housing costs is within your range.

Accumulate cash. If you don’t have at least some cash in your coffer, start a savings plan now. How much you will need depends on many factors, including the home price and how much down payment is required (zero-down loans are available, but their interest rates are typically high). Closing costs, points, moving expenses, and a post-purchase reserve fund of two to three months worth of housing payments can add up to many thousands of dollars.

Once you own your own home, you may eventually want a bigger or better living space. Rather than purchase a new residence, first consider remodeling. You can add rooms and customize your home to meet your needs and desires without having to move. While remodeling can be wise, it can also be stressful and expensive. Be careful when hiring someone to do the work for you. Any contractor you choose should:

  • Be licensed
  • Carry general liability insurance
  • Carry workers’ compensation insurance
  • Provide you with a written waiver at the end of the job
  • Guarantee work for at least one year from the date of completion
  • Provide you with references
  • Be financially sound with no risk of declaring bankruptcy in the middle of your project
  • Provide proof that he or she has completed similar projects
  • Include removal of all job debris and full cleanup in the price

So how are you going to pay for these fabulous improvements? There are two basic options: cash or home equity.

Cash: If the job is small or short term, paying with cash is often the best method. A nice advantage of using savings is that you won’t have to make loan payments. Be sure to set a schedule for cash payments with your contractor.

Home equity: Using home equity can be a great way to make major improvements – and in many cases you can also get a tax benefit from interest deduction. You can tap into your home’s equity by taking a conventional second mortgage, a home equity loan, a home equity line of credit, or a loan refinance.
Second mortgages and home equity loans are best for large, long-term projects that require lump sum payments, while home equity lines are good for short-term projects or those requiring incremental payments. Swapping a higher interest mortgage for a lower interest one can free up money for the project. You can refinance your existing mortgage and take all or part of your current equity in cash.

However, keep in mind that this will only be cost effective if you plan on remaining in the home long enough to recoup the closing costs and other fees associated with refinancing.

Finally, remember that home is not just where the heart is – it’s also where the money is. You can get the most from your real estate relationship by giving it a long-term commitment of time and attention.

All About Mortgages: Insider Tips for Financing and Refinancing Your Home
by Julie Good-Garton (Dearborn Trade Publishing)

Author Julie Good-Garton is a prominent real estate expert who shares her insider knowledge with consumers in her book All About Mortgages. Be forewarned – this book is dense with facts and information. It provides much more than a general overview, and someone looking for a quick summary may be overwhelmed with all there is to do and know. Yet the home mortgage loan process is not easy or uncomplicated, and anyone tackling it should get more than just a briefing. This book does just that. It contains practical advice, checklists, worksheets and an excellent solution-driven section on common home loan quandaries. All About Mortgages acts as a guide to getting the best possible deal in the ever-fluctuating world of mortgage rates. Listings of relevant internet sites and the contact information for consumer lending organizations are also included. It’s worth a look!