Buying House vs Rented House

Buying Vs Rented

When it comes to living on rent vs living in one’s own home, people who advocate the former often argue that a rental home costs less, as compared to owning a home.  If your social, professional AND financial lives aren’t in order, now is probably not the right time to be buying.Those who favour owning a house, cite the freedom that it offers.

 

A common argument for buying is, ‘Why would you pay monthly rent to a landlord instead of building equity in a home for yourself?’ In reality, there are many financial reasons why renting may be more compelling. You also need to make sure you understand whether you are even in a good position to buy a house. Your finances are not your only consideration either. If your social, professional AND financial lives aren’t in order, now is probably not the right time to be buying.

 The true cost of homeownership is higher than many anticipate.

There seems to be a widely held belief that buying a home always makes more sense than renting. That it’s a foregone conclusion. You often hear that ‘every dollar you pay in rent is a dollar you’ll never see again,’ while buying a house is a ‘great investment.’ Paying rent isn’t a waste of money.

One Time (Non-Equity) Homeownership Costs (6-12% of home value):

  • Mortgage Origination Fees (upfront fee charged by lenders for processing a new loan)
  • Closing Costs (usually include escrow fees, property taxes, interest)
  • Realtor / Lawyer Fees When Selling

Annual Ongoing (Non-Equity) Homeownership Costs:

  • Mortgage Interest Payments
  • Homeowner’s Insurance (HOI)
  • Property Taxes
  • Utilities (e.g. electricity, gas, water, etc.)
  • Flood Insurance

Renting might cost less, even over the long term.

After seeing that long list of expenses, it might start to sink in that the cost to rent can certainly be lower than the cost of homeownership. A common rule of thumb is to not purchase a home if you know you won’t live there for at least five years.In order to determine whether it makes more financial sense to rent or buy, you’ll need to compare the total cost you’ll pay when renting to the total cost of homeownership.

Calculating whether it makes more sense to rent or buy is easier than most people realize.

In 2014, the NYTimes published an incredibly helpful calculator that made it easy to calculate whether you’d be better off renting or buying a home. The more accurate your assumptions, the more accurate your results will be. Keep in mind, as noted above, that the laws have changed significantly since the calculator was published, and not all taxpayers will be able to claim related tax deductions – that can change your overall savings. Also, it’s tough to predict how long you’ll own a house, or whether it’ll go up in value, but just use your best judgement.

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