January 30, 2024 | by Team Wellby
Renting vs Buying: Is Now the Time to Buy a House?
October 27, 2023
By Team Wellby
When deciding where to live, many find themselves asking: should I be renting or making plans to buy a home? Each year, this is an important decision to make based on your current budget, available funds, and plans you have for your life, such as moving or starting a new job. Buying a home has some definite advantages for long-term investment and equity, but renting a home offers greater flexibility and a completely different financial reality.
The right time to transition from renting to homeownership will depend on market conditions like home prices, interest rates, and alignment with your life stages. Is now the best time to buy a house? We will walk through a few items to keep in mind that can help you determine whether buying or renting is the best strategy for you, no matter where you live or recent housing market trends.
If you do decide to buy a home or are in the market of becoming a homeowner, we can also help you understand all available mortgage options to you to help you with your journey as a a new homeowner.
The Benefits of Buying a Home
It's easy to see that homeownership comes with quite few perks and benefits, but it's important to look at buying a home with the right perspective. We can offer some useful perspective that can help you make the right decision based on your financial situation. If you are financially ready, you should be able to approach homeownership with confidence.
Can Be Annually Cheaper Than Renting
Buying a home is a big decision and has many benefits to it. In some markets around Houston, it can even be cheaper to buy than renting. If your mortgage is reasonable, buying a home gives you the opportunity to take control of your expenses with more fixed monthly payments, and put your cost-of-living payments toward long-term equity.
Appreciation of Value
Homes typically increase in value over time. You can also accelerate the appreciation of a home's value making positive changes to the property and attending to responsible maintenance. This means that many homeowners have the opportunity to build on the value of their home over time. However, it is important to consider the possibility that average home prices may not rise as predictably (and might even drop) in your area.
Stability in Your Lifestyle
Once you buy a home, you have every reason to put down roots. You can stay in the home as long as you wish without worrying about landlord interference, raising rent prices, or eventually being asked to move out. This is why many families opt for homeownership rather than renting, to enjoy the stability of a permanent residence for their families.
When you buy a house, you can make the place your own. Outside of HOA rules and regulations, if you live in a community with an HOA, you can conduct any home improvements you want. You can have pets, paint your bedroom, plant a garden, and anything else that you want because the property is yours alone.
Items to Consider When Buying a Home
Before you buy a house, it's important to consider the full financial scope of the journey ahead. This can help you decide whether it's a good time to buy a house both according to the local market and your own financial situation.
Depending on the type of loan, your minimum down payment can vary between 3.5% to 20%. There are also zero down payment mortgage options, available for qualified buyers. Keep in mind, you will need PMI (private mortgage insurance) until your equity reaches 20%, which you can take care of with a 20% down payment or maintain PMI for some time until you hit your goal.
Monthly Mortgage Payment
Weigh your income against the fixed-rate mortgage monthly payments and available interest rates. Compare your monthly mortgage with rent to discover which is the better value. The total monthly expense should be calculated as the principle + interest + property taxes + homeowner's insurance, keeping in mind that insurance and taxes can increase over time.
This should be compared against the calculated cost of rent + security deposits + renter's insurance + any additional costs of your rental community such as parking passes. If the monthly costs of owning a home plus the additional benefits we discussed above, is less than or equal to the cost of renting, it may be a good time to buy.
How Long You Plan to Live in the Area
As a "general rule of thumb," you can determine whether it's a good time to buy based on how long you plan to stay. Buying is more likely to be a profitable strategy if you plan to live in an area for 5+ years. If you plan to move in less than five years, it may be wiser to rent in the short term.
Benefits of Renting Instead of Buying
When is renting better than buying a house? You might be surprised to learn that renting can be a positive financial and logistic choice for professionals and families who may be interested in saving or spending, their incomes toward other financial goals.
It's Okay Not to Be Ready to Buy
There's no rush if you are financially or personally not ready to buy a house. You can keep renting for as long as you are comfortable with renting. Stay free from long-term commitments and continue enjoying a wide variety of homes before you settle down.
Rent Prices May Be More Affordable
House prices and rent prices don't always move at the same rate. There are many neighborhoods where it is cheaper by the month to rent a home compared to paying mortgage, insurance, and property taxes. If you are optimizing your income for other financial goals or milestones, renting is sometimes your best option for the space and quality of home you can afford. Especially if you want to live or work in area with a higher cost of living.
Easier to Qualify
Being approved to rent a home tends to be easier to achieve than being approved for a mortgage. If your working on improving your credit score or live off a fluctuating income, renting can be far easier to qualify and secure a good quality home compared to buying a house.
Many people who prefer to rent do so to remain locationally flexible. You can move to another city, another state, or even live in every neighborhood in your favorite city if you opt to rent instead of buying a home. You can pick up stakes and go backpacking across the country, move in with friends or partners, or move to help your family at any time without worrying about selling a home.
Lastly, many renters enjoy the shared responsibility model that comes from renting. Landlords are responsible for major repairs and maintenance tasks such as replacing major appliances such as the AC unit, refridgerator, or dish washer. However, it is very important to read your rental agreement to confirm what the landlord will provide and what is expected of you as a renter.
Things to Consider if You Choose to Keep Renting
If it's not the right time to buy yet, or you need more time to save for a down payment, renting can be the right choice as you consider your financial strategy. These details can help you achieve the best rental experience and prepare yourself for homeownership in the long-term.
How Long You Want to Stay
Lease agreements are usually for one year, with penalties for breaking your lease early. But some leases can be longer or shorter, for example 6 or 24 months. Consider how long you want to stay in each home before signing the lease.
Take Notes Before Signing a Lease
Walk through any rental house in person. Before you sign the lease, look for imperfections, ask about additional fees, and ensure that both the house and the lease terms are right for you. Don't forget to complete your move-in checklist in detail, with photos, on your first day before moving in.
Build Your Savings and Credit Score
While renting, it's a good idea to build up your savings and improve your credit score over the next year or several years. This can make it easier for you to have a down payment and get loan approval whenever you do decide to buy a home for yourself.
Explore Home Ownership with Wellby
If you are considering buying a home, the best first step is to scope out the financial landscape. We can help you assess your local housing market and the readiness of your personal finances. We can also provide access to favorable mortgage loan opportunities as you get ready to put down roots and become a pillar of your community as a homeowner. Ultimately, we want what's best for you, your family, and your financial future and are here to help you determine the best path forward toward success.
Team Wellby is a diverse team that is here to help you find the right financial solutions for your unique goals and budget. Our passion is people: our members, team members, and the communities we serve. We help people find solutions that support their financial well-being, allowing them to dream and prosper.
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