Renting vs Buying a Home

Choosing between renting and buying a home can be a big decision, and it’s not just about the numbers. Consider your lifestyle, finances and future plans to find what fits you best. Whether you’re looking for flexibility or a place to call your own, there are plenty of great options out there.

Housing and Rental Markets

The housing and rental markets are constantly in flux. One year, the housing market might see rising prices. Next, apartment rents might increase. Consider current market conditions when choosing whether to rent or buy.

The National Association of Realtors latest report states that the national median sales price of existing homes stood at $387,600 towards the end of 2023. That is a 0.03% decrease from the prior year. At the same time, mortgage interest rates have risen significantly. According to Mortgage News Daily, the average interest rate on a 30-year fixed-rate mortgage loan was 6.64% at the end of 2023. In 2022 the rate was 6.13%.

Meanwhile, apartment rents have been rising steadily since 2011. At the end of 2023, the U.S. Median Asking Rent was $1,967, a 2.09% drop from last year.

Why Rent?

You’re likely to move again soon. That is often the case with people who are just starting their careers — they may be assigned a job in a new part of town or find a better position in another part of the country. In either case, you want to be able to move in a hurry. If you own a home, you will have to sell it. Selling a home can take months. However, you can move at the end of your lease if you rent.

You don’t have much money saved. Most conventional mortgage lenders require a down payment of at least 5 percent of a home’s purchase price for those with excellent credit. A moderately priced house of $400,000 will have a down payment of $20,000 – $80,000. That is a lot of cash to scrape together. So it might make sense to rent until you can save that down payment money.

You have a low credit score. Lenders depend on your credit score for loan approval and interest rate determinations. If you have a history of missed payments and high credit card debt, your credit score might be low. Lenders reserve their best interest rates for borrowers with FICO credit scores of 740 or higher. If yours is far lower than that, you might not qualify for a loan. Moreover, it will be at a high interest rate if you do. Then it might make sense to rent until you can boost that score by practicing good financial habits.

You prefer the freedom of not maintaining your lawn or home. When the heat goes out when you rent, you call your landlord. When it goes out when you own a home, you call a contractor, which could cost a bit of cash.

Why Buy?

You can build equity when you own a home. As you pay down your mortgage loan you gain access to your home’s equity. You can tap into that equity, often at low interest rates, to pay down credit card bills, help cover your children’s college costs or fund a home renovation. When it is time to downsize, you can sell your home and take the profits from the sale to buy either a less expensive, smaller house or condo or make a trip around the globe. Owning gives you that financial freedom.

You get tax benefits. Each year you can deduct the interest you pay on your mortgage loan. That brings a hefty deduction each tax season. While this is true for most home purchases, the 2017 Tax Cuts and Jobs Act altered individual income tax by lowering the mortgage deduction limit from $1 million to $750,000.

You can do what you want with your house. For example, you can paint your bedroom red, add a third bathroom or convert the space above your garage into a home office. The choice is yours.

Horizon Can Help!

If you’re interested in buying a new home, make sure to reach out to one of our home loan specialists. Our specialists know the mortgage industry inside and out and are happy to speak with you about your options and needs. A conversation won’t lock you into anything. It can only help you! Give us a call today at 800.852.5316.

Read more articles like this on HZCU’s Financial Knowledge Hub.