Reasons to Rent Rather Than Buy
feel left out if buying just isn’t for you (now or ever).
make good sense for a multitude of reasons…
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.
Want to come and go as you please? Renting offers the ultimate
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.
It may cost less per month to rent, even with the tax benefit
There is no guarantee that your home’s value will appreciate
– and you could make more money in another investment.
You don’t have to bother with property taxes.
Your landlord may cover some or all of your utilities.
If your credit isn’t perfect, it’s often easier
to rent than buy.
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.
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.
are a king by your own fireside, as much as any monarch in
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
If you are
ready to shift from renting to buying, you’ve got some legwork
to do. Here’s how to prepare:
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,
- Pay off old
- Keep your
balances significantly lower than your credit limit
- Have at least
one account for longer than two years
- Limit your
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.
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:
general liability insurance
workers’ compensation insurance
you with a written waiver at the end of the job
work for at least one year from the date of completion
you with references
financially sound with no risk of declaring bankruptcy in the
middle of your project
proof that he or she has completed similar projects
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.
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.
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
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.
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.