Is Buying or Renting Right for You?

DVDs, cars, ski equipment—we face lots of situations in life where we must choose whether to rent or buy. And while we can make some of these decisions in seconds (I only snowboard once every few years, come on, I don’t need to buy a board!), one in particular requires much more thought: should you rent or buy your home?

You might be asking yourself if renting or buying is better in the current market. Or, more specifically, if renting is safer than buying in this market. So, how can you know which decision is right for you and your family?

We recommend you consider several factors before signing that lease or making that down payment. But don’t get overwhelmed.

Check your budget—before you move a muscle!

Important: Before deciding on whether renting or buying your home sweet home is the best option for you, make sure you know your budget and payment options. Before you start negotiating, figure out how much house you can afford. And, really, it’s how much house you should afford.

Is renting worth it?

Renting is a great option for anyone expecting life changes or for those who enjoy a change of scenery every now and then. So if you are planning to expand your family or work in an occupation that may require relocation, renting might be a good fit for you. Once your lease is up, the good news is that you’re free to go. So, if you want to move to a different area of Boston every year, no one’ is stopping you. With renting, the world is your oyster! But, of course, you’re here because you’re wondering if renting a home is a good financial choice. Let’s get down to business, shall we?

Pros:

• Moving is easy/fewer strings attached. If you plan on moving in a place short-term or just aren’t enjoying the home as much as you thought you would, you can move out when your lease is up. There is no need to worry about putting your house on the market and searching for a new tenant.
• Maintenance is not your job. Did the dishwasher break and leak bubbles all over your kitchen floor? No worries! Call up your landlord. They are the individuals responsible for repairs. (Remember: Always look at the fine print. Although your landlord pays for home repairs they do not always cover the cost of your utilities. Be sure to read your lease to see if they are included in the monthly rent. If not, be sure to weigh the cost of utilities when you are creating your budget.)
• Renting can cost less than buying a home. Sometimes, and certainly not always, a monthly rent check is less than a mortgage payment. This is not always the case, so we recommend you look closely at the fine print in these contracts—and don’t just take Zillow’s word for it!

Cons:

• Less control. Want to paint the family room a pretty ocean blue or remodel the outdated master bath? These desired renovations may require approval from the landlord first! (Check the guidelines for renovations in your lease before signing it)
• No return on investment. Unlike buying a house, you’ll receive no return on the home down the line. Homes can be a form of investment and, when you don’t own it, you’re simply helping the homeowner invest in their property without any returns or benefits for yourself, But hey! Maybe you’ll get your whole security deposit back.
• No building equity. Much like the lack of ROI on a rented home, you are not building your equity. As a rental, your home does not count as one of your assets. And, as such, if you decide to buy your next home, you will not be able to put your home equity into your next home’s down payment. That means the cash you’ve put into rent won’t help you in the future, like the cash you put into your monthly mortgage payment would.

Buying

Buying your first home is an event you will always remember. But it is not something you should rush into. Before buying you should first make sure you are financially stable. Do you have job security? What’s your credit score? Are you investing in your future? Do you have a lot of debt? These are all questions you should ask yourself.

When buying a home, you should also be ready to settle down. It is a big commitment. With so many initial one-time fees you want to make sure you are ready to live in the area for a few years. This way you can avoid facing the expenses of moving for longer.

Pros:

• Free rein! If you don’t like the color of the living room, are dying to replace the kitchen countertops, or want to expand the deck, you are completely free to do so (as long as it’s within your budget!) It’s yours, after all!
• Return on investment. If done right, buying your own home can be an investment that could increase in value in the future. By keeping up your home and renovating the space you may see a nice return on your investment if or when you decide to sell the house. (But buyers beware! Although the value of real estate typically rises with time, there is always a possibility that it won’t increase. Real estate bubbles have been common throughout history, it seems each generation gets to learn about "bubbles" for themselves. You can talk to a local real estate agent for their insight on different properties in the area.)
• Building equity. Your home counts as one of your assets—and you’re building equity and ownership on the property. If you decide to sell your house and buy a new home, you’ll be able to cash in your equity of your sold home into the down payment of your new home. That means the cash you’ve put into your mortgage payments against principal each month can come back to you in a "normal" (non-real estate bubble) real estate market.
• Tax deductions. People who itemize their taxes are often able to deduct mortgage interest in their tax returns. However, this perk is not applicable to everyone. Do your research. Look to see if you have the ability to itemize your deductions and determine if your mortgage interest can qualify for a deduction.
• The big picture cost. After a few years, the amount you’ve paid toward your mortgage payment oftentimes ends up being less than a monthly rent payment. This means you could save in the long haul. But you have to make sure you are handling your mortgage payments in a smart and efficient manner. Mastering your mortgage and determining when the right time is to refinance your mortgage are all part of the fun of owning a home! (Don’t worry, we’re here to help.)

Cons:

• Wear and tear is on you. Is there a leak in the roof? The cost to fix it is coming out of your wallet (or, hopefully, your emergency cash fund). Before buying a property, review the seller’s disclosure and get a home inspection to help ensure that a property will not come with too many repair fees. In case of emergencies, make sure you have enough money to set aside for repairs— not just for the down payment.
• Long-time loan. Buying a house usually means taking out a loan. Paying these off takes time. If you plan to buy, make sure you are willing to settle down in that location for at least a few years while you pay it off.

The big decision is up to you

We’ve given you a lot to think about. So don’t rush things. Take your time and think about what makes the most sense for your current stage in life. Now breathe.

If you decide to buy your home, congrats, ‘Nester! Next up, we’ll help you figure out how to master your mortgage!

Remember. Before you make any decisions you need to make sure you are financially ready to be a house tenant or homeowner. Download the our digital banking app for help getting your finances in order before taking on a new rental or home.