Is it better to rent or buy a home?

[DelKroemer]

This may sound like a really easy question to some, but it is one I am having a hard time with.

My hubby and I have always rented, one thing I like about renting is that we don't have to maintain the property

which to me just sounds time consuming. However, my hubby is very handy and could surely handle such things.

My other huge concern about owning is that most of our friends are home owners but they seem to always be complaining about mortgages and not having money to pay for other things, sometimes the utilities since none are included and sometimes not being able to go on vacations and such, which we really enjoy doing.

Honestly, we are paying down debt right down, thankfully we don't have much even between us, but we weren't taught anything about finances or getting a home so we don't really know where to start. Every time I look at home prices they seem crazy to me lol Just because I am wondering how much you have to pay upfront and what if we wanted to relocated?

anyway, I would just appreciate any input, advice, steps towards home owning if it is a good choice, etc. Thanks!

[SunRise]

I love owning my home. Love it.  Perhaps because I feel my money is going towards my mortgage and when I sell I can recoop. Or perhaps because I can paint the walls when ever I feel like it, change things etc.  Perhaps because when the mortgage is paid off, this will noticeably change my budget for the better.  Another big factor for me - in my town owning and paying a mortgage can be less then a three bedroom rental. I also like my back yard and off street parking.

I don't feel pressured to keep up with the Jones but do have the community responsibility for keeping the grass cut and shoveling the sidewalk first thing in the morning,

One negative - intrusive free loaders - I bought a weed whacker last year and over the winter the squirrels ate through the gas tank. That makes for an unwanted cost (but I decided the weed whacker was more of a pain so not replacing it)

I have owned two houses. (I was 38 when I bought my first and 42 when I bought my 2nd) Both times I needed 1000 for a security deposit upon my offer, another 2500 - 3500 during the mortgage process for fees and then the 5% down (the 1000 dollar deposit went towards this and I went with the low down payment because I do not plan to stay for that long). 

A few surprises - the first mortgage payment was not due until the 2nd to 3rd month after sold date (so one can sock away a payment or two); property taxes were instantly reassessed based on the price I bought the house for (so the tax payment went up 6 months later and then again, another 6mths later, adding an additional & unexpected 200 dollars / mth on mortgage/escrow payment). BUT property taxes vary wildly throughout the country and may not be an issue or at least a big as issue in a different county.

Edited by SunRise - 8/21/12 at 10:47am

[CarrieMF]

Here owning is the same monthly cost as renting so that isn't really a factor.  Even apartments are costly & most are now condos that you have to buy anyhow.

Some places have utilities included in rent, others don't.

I don't like having to do things other people's way.  We just moved a month ago & we had this one built so I could have things the way I wanted them and so I didn't have other people's filth in my house.

Life would have to be very dire for me to rent again.  I also live in a country that wasn't hit like it was in the US and in a province that is booming still.  Even when the oil crashed here it didn't really crash, We both work in areas that aren't in oil, but will always be around.

[Sharlla]

i like owning our home because our mortgage is only $272 (we got a deal on the house and put 25% down) and someday it will be paid off and ours completely.  a comparable house would cost us at least $550/month.  we are lucky that the property taxes here are only $500 a year, i cant imagine paying thousands of dollars a year in taxes, we could never afford that.  we can paint the house whatever colors we like and have as many pets or guests as we want. our house, our rules.

the down side our deductible on ins is $1000 so i f the tree falls on our house we have to come up with that money.  if we need a new roof, furnace, or ac unit that all has to come out of our pocket just like any other home repair. we have to pay for pest control and we are pretty much stuck here unless we went through the hassle of selling or renting the house.

renting is nice because we can move if we want and its about the same as most mortgages here and we dont have to fix anything if it breaks.  if our mortgage wasnt going to be as low as it is there is no way i would own. 
 

[Pogo0685]

I am only 27 and DH and I bought this house when I was 23 so for my area I was very young to be buying a house. I love owning it though, yes its going to suck when we want to move because I am going to have to go through the hassle of selling this one. But the positives are I can do WHATEVER I want WHENEVER I want to do it. Also for where we live we pay way less than we could rent for. Our payment is between $650 - $700 a month, to rent this we would be paying at least $1200 a month. We have a 5 bed / 3 bath house on 45 acres of land. So we can have chickens, horses, goats and whatever else we want. The worst part is the fencing for the animals is so expensive that its taking a long time to get it all done. We also built 2 shooting ranges in our "back yard" something that means the world to my husband and we could have never done that closer to the city. The bad thing is fixing stuff, DH and I are prone to bad things happening to us, we paid for a home inspection before we bought the house, the day we signed on it and started moving in (we lived in a very bad part of town and I was 6 months pregnant) the furnace went out, that cost $1,500 (and it was October so it was getting cold quickly). Then the next spring the hail destroyed our roof, another $1,000 then our hot water heater literally blew up another $1,400 and we didn't have water for 2 weeks while it was all being fixed, then the very next spring the hail came back and our insurance decided they would only pay for half of the roof, would have cost us about $9,000 but the place that put in the roof the year before took a loss on us because they felt bad for what the insurance was doing so it only cost us $1,000 and they even fixed all 3 broken windows for free. In Colorado there is a program for first time home buyers (CHFA) where you go to an online class and they hook you up with a bank and they pay your down payment for you, all you have to come up with is $1,000 earnest money when you make an offer, and the money for home inspections and stuff like that (ours was $450) so it cost quite a bit upfront but in the end I think its completely worth it to own your own home.

Also want to add I would have one hell of a time renting as house with the amount of animals we have, and if the number we have doesn't scare them before I bought this house when I would call around to find a place to rent it went something like this:

Me: Do you accept pets

Them: (yes or no - If no I said thank you have a nice day)

Me: If they said yes I would ask if they would accept dogs, cats, 

Them:(again get a yes or no answer and usually how much they wanted per pet for deposit)

Me: how about 3 pit-bulls

Them: 99% of the time it was a no

Just being able to not worry about my dogs is a HUGE bonus to me.

[crunchy_mommy]

I've owned my home for 5 years now and I'm still not sure if it's better to buy or rent!! It seemed like a no-brainer when we bought, but because the housing market crashed (and is still sinking in our area) my house is worth only half what I bought it for -- which means I cannot sell, refinance, move, etc. I never anticipated housing prices dropping so much -- I live in one of the hardest hit areas of the country, so I guess this depends where you live. We planned to stay in our house permanently but personal issues plus unemployment have made that really really tough -- ideally we would move somewhere cheaper and further away from certain people, but we cannot move, we are stuck here.

Pros:
- Our home will be paid off by the time we turn 50 (if we don't end up in foreclosure or something, that is!) so we won't have to pay rent/mortgage for the rest of our lives. It will make retirement easier.
- We can do whatever we want -- paint, remodel, be noisy, own pets, etc.
- Rents are about the same as our mortgage around here, but we have the advantage of actually having something to show for it in the end, so it feels like throwing away our money.
- We have a yard and a driveway -- both things hard to find around here if we were renting in the same price range.

Cons:
- We cannot pick up & move whenever we want.
- Our mortgage is by far our most costly monthly expense and we have no flexibility with it -- can't cut our housing costs no matter how badly we need to.
- We have to do all the maintenance & repairs. DH is not handy (though he tries). Repairs are expensive. We don't have a lot of time and these things are always hanging over our heads.
- Lots of hidden expenses. Real estate taxes are high here. There are also other property taxes (like a fire tax). If our septic tank fails we won't be allowed to fix it -- we'll have to pay $10K+ to tie into the town sewers. The house settled (again) and all our kitchen tiles broke but we don't have the money to redo the floor. There are things I've come to hate about the house but we are stuck with it the way it is.

We bought with $0 down and got closing cost assistance so only had to pay a couple thousand dollars ($1000 deposit on making our offer, ~$500 for the home inspection, a couple of other minor things). I wish we had waited & saved more to put more $ down upfront. I wish we had waited 'til the housing crash so we could buy a home for less than half what we spent. I wish we had rented a home or two (instead of just tiny apartments) beforehand, so we had a better idea of what we'd really want in a house. I also wish we had considered relocating somewhere else in the U.S. Financially, it's a struggle now, but rent would be too, some I'm not sure that it was really a horrible choice, just things didn't quite work out in our favor. Bottom line, if we could go back & do it all again, I would not buy, but that's more because of a major change/trauma in my personal life and less about thinking owning a home isn't worth it.

[leafylady]

I like having a home because we have pets and we can make any changes we like.  

However,

A house is a money-suck.  Something always needs repaired or replaced.  It's hard to sell these days and you NEVER ever get the money you put into the house.  I put in new windows, new roof and new carpet, but that doesn't mean I can tack on the cost of those improvements to the selling cost of the house.  I might be able to ask a little more than somebody with less new stuff, but I won't be able to get the 30k I paid for the improvements.  

[lmonter]

Originally Posted by leafylady 

A house is a money-suck.  Something always needs repaired or replaced.  It's hard to sell these days and you NEVER ever get the money you put into the house.  I put in new windows, new roof and new carpet, but that doesn't mean I can tack on the cost of those improvements to the selling cost of the house.  I might be able to ask a little more than somebody with less new stuff, but I won't be able to get the 30k I paid for the improvements.  

This.  If you think of a house as just a place to live and not an investment, you can definitely be okay.  But.  You have to have an emergency fund for when that bastard Murphy comes knocking.  As hubby and I say when something breaks "the home repair trifecta is now in play!"  One year, it was the garage door, wood stove, wood stove piping, dishwasher, and water heater.  Recently it was something on the van, something on the truck, the dishwasher (false alarm), and septic tank (not cheap!).  If you have the cash to take care of that kind of thing, no worries.  But I know too many folks that live paycheck to paycheck and a month like that would about break them (you can't just skip paying the mortgage or other bills when the septic tank's acting up).

One thing that's nice to know is that when we get this sucker paid off (hopefully in the next 3-7 years, whenever someone turns 40yo is my goal), we'll have someplace to live in our old age, or at the very least, sell it to find someplace else (smaller, with staff if need be?) rather than need a 40-year mortgage note at 75yo (how much is social security paying nowadays? enough for a mortgage?).  Frees up income for living/saving, rather than that monthly bill.  That point is moot if you refinance all the time or keep upgrading with no end in sight (I've seen some folks like that, it's a trip).  Oh, we also bought this place with the thought of possibly staying here forever.  Took me some time to embrace the 'wonderful' 70's vibe that our orange bathroom embodies, but I bloomed where I was planted, and would be perfectly fine dying here in this house in 50 years.  We love the area where we live, our neighborhood has stayed steadily normal/nice for decades before we came along, all that jazz.

Yes, decorating things how you want seems to be a common theme.  But my own reality?  I don't have anyone up my rear about the dent in the entryway that's been there for almost 8 years (there was an incident while dragging in the new wood stove), or the dried on yogurt on the dining room wall that took off all the texture and paint, or all the garden beds I put in the backyard.  Honestly, I'm *way* more attached to those apple trees and raspberry canes and grape vines and asparagus in my yard than a custom-painted wall (you ever planted 100+ asparagus crowns? that's hard work!).  We're more practical and annoying that way.  Which is why folks are shocked that we refinanced last year (which yes, knocked us back to a 30-year note), but then I just started dumping extra money on principle this year to offset it, and our mortgage payment is about half the going rental rate in the area.  Caveat with that tidbit - there's been a *ton* of foreclosures in my area, so rentals are *hard* to find, and houses/foreclosures for sale are overpriced, so our mortgage being so low is kind of a general circumstance thing.

Anyway.  I can dig in the yard all I want, but I've also had to be okay with no running water or no warm running water for days at a time since there's no one to call but ourselves, or handwash all the dishes when the motor pump dies on the dishwasher (we're a family of 6-7, cooking from scratch takes a ton of dishes no matter how you slice it).

[Ragana]

I'll post from the other point of view - we rent and plan to continue renting. If we could get a deal like $500 mortgage and $500 property taxes, sure, we would do it in a minute! In our area, though, I have figured (and I have researched prices in our neighborhood extensively) that mortgage plus taxes would cost us about $2,000 to $2,500/mo. (*not* including repair fund, etc. like others have mentioned). Yikes - not in the budget. Renting is much cheaper for us. We have a good situation in that we rent from family for a bit less than the market rate, so it's a good deal and the rent money is "staying in the family." The location is also very good for everything we like to do. Even at market rates, we could rent for $1,000 *per month* less than buying!

Even if we didn't have our deal, we would rent. We are not handy and don't enjoy house repairs or remodeling. We are not gardeners. We simply prefer to spend our time in other ways. We love city life and having amenities within walking distance. Also, we have plans for longer-term travel, so we need/want the flexibility that renting offers. We like our schools, but if we were disgruntled, we could pick up and move to a different district. Renting gives us the opportunity to live in a much nicer community than we could afford if we had to buy. Hope this other perspective helps, too.
 

[BabySmurf]

Originally Posted by lmonter 

  If you think of a house as just a place to live and not an investment, you can definitely be okay. 

I actually feel the opposite - you need to look at it as an investment and not just a place to live.  I agree with what Imonter is saying, but I think that the choice ultimately comes down to the idea that buying a house can be a sound investment IF you can afford it, and you make an educated, thoughtful choice.  Purchasing a house is not just getting a place to live, it's about investing in your future.  A place to live can be many things, and the ability to have a say in the way you live, be it cosmetic or otherwise, is going to depend on a lot of different circumstances.

Some factors to take into consideration:

1) Cost of living:  If the cost of living is too out of sync with the median income, you can anticipate a shift in the market.  If cost of living is low, but income is increasing, you may be in an "up in coming area" and see an (overall) profit if you choose to purchase vs. rent.  If the cost of living is really high compared with the amount of money people are making, logic would say that problems could ensue, and home values may decrease in order for people to be able to afford to live in that area.  There will always be fluctuation in the market, and you can't always predict the job market, but it's good start to look at the overall prices of homes to see if you think they are over valued. 

2) Length of Stay:  This is a biggie.  It definitely makes a difference if you are planning on staying in one home to "grow" in, or if you are the type of person who likes to change things around every few years.  It's possible to purchase a small house and sell it a few years later and use the equity to get a nicer house later on, and although that is getting more difficult to do, it's certainly still doable.  There are programs you can plug your information into and they will "compute" if it's worth it to buy vs rent, and what they are basically doing is calculating how much equity you could establish within the time frame you think you would be staying in a home for compared with renting.  Renting definitely requires less responsibility, but no matter where you live, you need to pay for it.  So if you are thinking about staying somewhere for a long time, the equity you establish can be worth something.  Owning does require keeping up the home and fixing problems, which does cost money, and those costs do need to be included in the calculation, but they also need to be look at in terms of the long term or big picture. 

3) Savings:  Being prepared to buy a home is a huge deal, and it takes a lot of money! It's not easy to come up with the money, but being able to come up with it is a good indicator of if you can actually afford it.  When we bought, we had a budget set aside in order to make any repairs needed on the home when we moved in AND we had enough money to cover us for a couple of months in case DH lost his job.  "They" used to say to have 3 months worth of money saved, but in this economy that is probably a modest amount.  We dipped into those funds when we had a pipe burst and we had to redo our bottom floor (which needed to be done anyway), but we were able to pay cash, and are now working on replenishing that account.  It also costs a lot of money to landscape, to furnish, and to decorate a house.  Thousands! And that's not including upkeep, fixing any issues that arise, and any upgrades that you would want to make.  And again, if you make smart choices, you should see some of your money back.

4) Be realistic about your Finances:  We were approved for WAY more than we should have even thought about spending.  Make sure that you have a budget and stick to it! Our goal for buying a house was something that we would be able to swing a 15 year mortgage with.  (That can save hundreds of thousands of dollars where we are). That put us in a price range nearly $150,000 less than what the banks said we could afford.  I don't know where they got their numbers from, but we could NOT have afforded to live on what they "said" we could.  We ended up still getting a 30 year mortgage, but we overpay every month to cut down that principal. 

5) Think Like an Investor:  You are not just buying a home for yourself.  Many circumstances could result in the reality that you need to sell your home.  Is it resalable? How much "work" does it need? How does it compare with the other homes in the neighborhood? Check recently sold homes to make sure that the price is good, and that the workmanship is comparable.  Your money will generally work harder for you if you are buying the smallest/least nice house in a nicer area than if you are buying the nicest house in an okay area.  Don't be afraid to walk away if it's not worth it.  And don't forget about insurance/flood insurance, taxes, and any other fees (i.e. HOA if you are buying a condo) - those can add up super fast. 

6) Consider your End Game:  What are you trying to accomplish? For us, we wanted to buy something that we could pay down quickly so that we could establish equity and have the ability to live without needing to pay a mortgage/rent, upgrade to a better place, or downgrade when we retire.  We were lucky enough to stumble on a foreclosure where any of those things are possible.  And if after we pay off the house, the market crashes....we won't have paid much more than we would have had we rented.  And the market probably won't crash so hard that the house is worth zero.  Unless global warming floods the east coast, in which case we are screwed. 

So while having the ability to garden and paint to your wildest dreams is nice, it can't be the only thing you consider. 

[K1329]

I agree completely with Babysmurf! Great advice. There are so many factors to consider when deciding if buying makes sense for you, but, ownership has been a great investment for my family. We rolled a significant amount of money taken from equity built owning our first home into our second house & are in the process of moving even more equity into a third house. This is money we would not have had we rented. Also, month to month owning vs. renting may come out the same. But, there's an end to the mortgage - 15 yrs, 30. That's attractive to me, too.

[mnnice]

 

I think the whole buy rent thing is very personal and rules of thumb don't apply well.

As a child my parents always rented until they built the house they live in now in 1988 when they were in their late forties/early fifties.  I don't think I gained or lost much by living in rented space.  We had an unusual situation and we had a garden and painted all we wanted.

DH bought our first house in 1998 and our second in 2001.  We lived to see the bubble both give to us and take away. We lived in our first house just 27 months.  I figured out that if you added the money we spent on downpayment, closing costs, monthly payments, taxes and insurance while we owned it and subtracted the money we got back when we sold it it cost us a whopping $150 per month to live there.  Pretty good for a place that would have cost $1300 to rent.

I did the same exercise with the next house which we owned for over 11 years and it wasn't so positive.  It cost us over $900 per month to live there which would be about the same market rent.  As a side note.  This house was the smallest cheapest house in a subdivision right near the best public (and private too) high school in the area.  That didn't help us out when it came time to sell.  People would be familiar with the area and automatically the house should have been bigger. 

Dh and I currently rent his grandmother's house.  Because of its placement in the middle of 360 acres of ag land (that is going for $10,000 an acre )  There is no way we could afford to buy it even though it is old and in poor repair (on a 1/4 acrea town lot in the nearst down it would be a $50k or $60k house).  I really don't know how long our run here will be.  We joke that when the kids graduate from high school we will move elsewhere and the kids can stay here.

[Mulvah]

I think you got some great advice already.  I ran across this calculator the other day and I think it is a helpful tool.

[onlyzombiecat]

I think it depends on your situation/lifestyle and plans for the future what will be best for you.

When we rented we paid for utilities and one place we were responsible for lawn mowing. For us the money isn't really a big difference between renting or making mortgage payments.

Maintenance is time consuming. We pay someone to do lawn care because dh works full time and goes to school. Projects around the house sometimes have to wait until we have time or money to take care of them.

Renting pros:

We weren't responsible for maintenance/repairs.

Easy to move when we needed to.

Renting cons:

When we needed something fixed we couldn't just take care of it or make our own choices.

Dirty carpeting and beige walls. The places we rented all had carpet and beige walls.

Other people had access to our home. Less privacy.

No pets allowed.

Owning pros-

Free to have pets- I'm pretty sure no one is going to rent to us with 2 dogs and 3 cats

Choices about our flooring, paint, etc. was important to me.

Choice to repair- or not to repair- and how to do it is up to us.

No stress about dd drawing on the wall or something getting stained or dinged

Privacy

Owning cons-

property taxes

insurance

property maintenance

Can't move as quickly if we decide to move.

Larger commitment to a particular area/neighborhood.
 

[erigeron]

DH and I have rented since we moved in together, almost 6 years. During that time we've finished school, gotten professional jobs, and had a baby. For the family that we want, this place is too darn small, and to rent a place we wouldn't outgrow in 3-5 years, we would be paying about the same as we'd pay to own. Also, we have carefully considered relocation and decided that staying in our current city is probably the best move for us.

It didn't make sense to buy when I was still in school and before our daughter was born, but eventually it started making increasingly more sense. 

We're in contract on a house now, so we haven't experienced home ownership yet, but are about to take that step. I guess we could have planned to rent for a few more years and save up a little more/pay down some more student debt, but as soon as we look at moving to a bigger place, the amount we'd save by renting is less. I would have been more okay with this than my husband--he really wasn't okay with continuing to rent because he's in the "I want to do what I want to do" camp. 

[A&A]

It really depends on where you live.  In some cities, it makes more sense to rent, while in others, it makes more sense to buy.  You have to look at home prices (and cost of ownership and repairs) vs. rent prices.  (And you can search for articles that tell you which cities are best for renting or buying.)  In Houston, you should buy.  In Austin, you should rent, for example.  

[luckiest]

I think there are way too many variable factors to say what's right for anyone else, but here is why we bought last year -

We wanted roots.  After being transient for so long, living in a new place every year, I wanted a house to live in, not an apartment.  We wanted a yard, a place to garden, space for the kiddo to run, all that.  We looked at renting houses and quickly found out that it a mortgage would be cheaper than rent for most of the houses we saw.  That isn't to say owning a house is that much cheaper once you consider property taxes, maintenance, insurance - but at least with a mortgage we are paying into an investment, rather than definitely not seeing any money back on renting.  That consideration obviously depends on your region's market, and we bought in a desirable neighborhood in a growing city.  Our house is a bit of a fixer and we had to do some reno before we moved in, and there is still a little more to do, but if we sold today we would already get a decent return based on the improvements we've done.  

Our mortgage is about $1500/month, and 3/2 houses in our neighborhood rent for well into the $2000's.  The mortgage is our only debt.  I love being able to do whatever we want to the house and yard.  I love the privacy we have wihtout wall-sharing neighbors for the first time.  I certainly don't think anyone should be stretching their budget to pay a mortgage, considering how much a home costs in ways beyond just the mortgage.  We were approved for a loan far beyond what we were comfortable paying, so I wouldn't let that be anyone's guide in determining how much they can afford.

[mamarhu]

I have owned and rented, and greatly prefer renting. I like the feeling of freedom that comes with not being tied to a 30 year commitment. I have always had great landlords, who fix anything that breaks virtually instantly. When I was the owner, things needed repairs, but I had to wait till I had the cash, or find a repairman, or try to fix it myself (often with scary results!) For me, renting is so much simpler, and I value simplicity these days. This might be more emotional and philosophical than fiscally responsible, but it works for me.
 

[Ragana]

Originally Posted by mamarhu 

For me, renting is so much simpler, and I value simplicity these days. This might be more emotional and philosophical than fiscally responsible, but it works for me.
 

There is this idea that renting is not fiscally responsible. When I plugged in my figures into the rent vs. buy calculator that another poster posted above, the result was that over 30 years it's never more beneficial for us to buy than rent. Again, we are in an interesting situation in that we are renting from family. Still, housing has clearly not turned out to be the "investment" many people thought it was.

[lmonter]

Originally Posted by Ragana Still, housing has clearly not turned out to be the "investment" many people thought it was.

Yeah, I was just thinking about this...  And housing prices haven't plunged as low as they likely will (well, as long as we still have the USD in it's current incarnation).  I've had friends that ended up upside down or in foreclosure - home ownership hasn't been the dream they thought it was.  Can't say I'd be thrilled if our house's value went below what we bought it for, and we got it before the boom and we're still doing okay.  Doubt we'd really break even with all the interest payments (the statements the first year are kind of depressing when you look at how much you're putting on principle vs. interest), repairs and upkeep and all that.