Buying a Home or Renting an Apartment

buying home

The moment you enter in you 20’s, you start thinking about your future and how, where, when and with whom you want to settle down. At that age you are still building your career and don’t have a lot of money. At the same time you have the risk taking capacity to buy a home on loan. But this dilemma can be extremely confusing sometimes; buy a home or rent one. Which one is better?

To be able to answer that you have to know the pros and cons of both. So here is a brief look:

Pros of Buying a Home

1. Building Equity Over Time

Every rupee your loan’s principal you repay represents a rupee of equity giving you the actual ownership of the property. Once you reach 20% equity you can tap use the home equity loan to refinance your mortgage for a lower interest rate and a longer repayment window.

2. Potential for Rental Income

Your home can easily be turned into a source of income by renting out a part or all of it. This will partially or totally offset your mortgage, tax, and insurance payments on it. You can give away a single bedroom, an entire floor (if you have a duplex) or even turn a portion of your house into an airbnb. The options are endless.

3. More Creative Freedom

As the owner of the house, you can make changes, in line with the rules and regulations, choose your own colour theme, decorate the house the way you want, buy expensive furniture and do anything you want since you know you will be living there for a very long time. This freedom is not available to renters.

4. Sense of Belonging and Community

Home owners prefer to stay in their homes for longer period, they connect with the local communities better. This may be by joining a local neighborhood association, volunteering at a nearby community center, sponsoring block parties or even joining a school group. Renters might not do these things, especially if they know that they may be move in a year or two.

Disadvantages of Buying

1. Potential for Financial Loss

As mentioned earlier, home ownership builds eventually equity and equity doesn’t mean automatic profit. Home values in your area may decrease or remain constant during your tenure as a homeowner and you may risk a financial loss when you sell. Renting, on the other hand, doesn’t build equity, it also doesn’t involve the risk of owning a depreciating asset.

2. Responsibility for Maintenance and Repairs

Home owners are responsible for paying of all uninsured maintenance and repair work on your home.

3. Most Homes Aren’t Sold Furnished

You may get the freedom to decorate your home the way you want, tthat also means that the homes are unfurnished and you will have to spend a bomb to get the entire house in place.

4. High Upfront Costs

upfront home buying costs vary greatly based on the size of the down payment and the value of the home. While most renters have to pay relatively low upfront costs. And also stand a chance to recieve back the deposit one they leave the house.

Advantages of Renting

1. No Responsibility for Maintenance or Repairs

Renters are not responsible for home maintenance or repair costs. Be it a toilet back up, a pipe burst, or an appliance breakdown, all the costs are borne by the landlord or superintendent.

2. Relocating Is Easier

While renting, relocating is easier, potentially less costly and less time-consuming. If you expect a change in location multiple times, renting is better until you stabilise at one place. On the other hand selling a home takes time and effort. Lack of time to find the buyer may also lead you to sell for a lower value.

3. Credit Requirements Generally Less Strict

Most landlords require renters to undergo a credit check, as long as you don’t have bankruptcy, you will most likely not be denied. Whereas mortgage lenders typically have high credit standards, and are sensitive to small changes to your credit score that can significantly affect your mortgage rates, potentially adding thousands in interest over your loan term.

Disadvantages of Renting

1. No Equity Building

Exactly opposite to that in buying aa home, every rupee spent in rent is lost and you will not gain any additional equity with it.

2. Limited Control Over Ongoing Housing Costs

Landlords have the ability to raise your rent once your current lease expires. This is done to offset rent increases and overall increased cost of a property, to compel current tenants to vacate the premises rather than sign a new lease, and for many other reasons. By contrast, homeowners with fixed-rate mortgages make fixed loan payments each month, regardless of what the local real estate market does.

About Jennifer Cribsly

I'm a former real estate broker who specialized in helping first time buyers be able to purchase a home. Now full time mom, part time real estate owner/investor.
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