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Renting vs. buying: which is the better option?

Many people these days are asking, should I rent or own a home?

Each option has pros and cons, which we’ll discuss in this article. For example, renting a home may cost less on an annual basis because renters are not typically responsible for maintaining the property or doing major repairs.
Buying a home means you’re solely responsible for all the maintenance, which can add up.
Owning a home usually pays off in the long term, as you pay off your mortgage and build equity.
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Advantages of renting

There are numerous advantages to renting vs. buying a house, including:
Fewer upfront costs. Typical up-front rental costs are paying the first month’s rent, last month’s rent, and a security deposit equal to one month’s rent as well.
Not responsible for repairs or maintenance. Tenants are not usually responsible for maintaining the home. A landlord may require that you only contribute a percentage of costs associated with wear-and-tear on replacement appliances.
Rent payments may build credit. If you pay your rent on time and your landlord reports your rent payments to any of the three major credit bureaus, this may positively impact your credit score.
Easier to relocate. Moving to switch to a new job or school in a different city or state is easier as a tenant than a homeowner.
Don't have to worry about falling home prices. Economic factors can influence the value of your home and if you need to sell during a “buyers’ market,” you could lose money, or your home could take a while to sell.
No property taxes. Homeowners pay property tax, while renters do not.
Utility bills may be included in the monthly payment. Some landlords will include utilities, such as cable or water, in your monthly payment. This can add up to significant savings.

Disadvantages of renting

These are some of the typical disadvantages of renting vs. buying a house:
Rent increases. Landlords can increase your rent at any time and without notice.
No tax benefits. Homeowners can take advantage of tax deductions on certain expenses associated with owning a home, while renters cannot.
Fewer options for home customizations. If you’re the type of person who likes to customize your surroundings with unique wall paint colors and other modifications, this may not be possible when you’re renting.
Limited vacancies. When home prices and mortgage rates are high more people look for rentals, which drives up rental prices and creates more competition for the most desirable spaces.
May not be able to have pets. Many landlords and condominiums/co-ops do not allow pets or have restrictions on the type and size of pet allowed.
Less stability. A landlord may decide they need to use their home, and as such, you could find yourself with only a month or two to find a new place to live. Be sure to read your rental agreement carefully so you understand your rights.

Advantages of buying a home

Owning a home is a big responsibility, yet there are significant advantages with owning vs. renting:
Tax benefits. Homeowners may be eligible to tax deductions, such as having a home office, home mortgage insurance premiums, and having paid mortgage points on your home purchase.
Equity. Although there may be short-term economic declines, owning a home builds equity over time and increases the homeowner’s financial worth.
No landlord. When you own your home, you’re in charge and you don’t need to worry about your privacy, or the cost of rent being raised.
Ability to renovate. You can paint your front door purple and customize your home any way you choose.
Stability. If you pay your mortgage on time, owning a home provides long-term stability.
Pets. Animal lovers can have all the dogs and cats they want.
Build credit. All mortgage lenders report borrower payment activity, which means your credit score will benefit when you make on-time mortgage payments.

Disadvantages to buying a home

While there are significant advantages of owning vs. renting, there are potential disadvantages as well:
Large up-front costs. Coming up with the initial down payment and closing costs is a huge expense that people spend years saving for.
Decline in home value. Some economic conditions can lead to a drop in home values, which could cost you money if you need to sell at that time.
Repairs and maintenance. Houses continually need care as time and weather take a toll. Before you buy a home make sure you have set aside extra money to repair or replace a leaky roof, drafty windows, update the heating/cooling system, and other essentials.
Harder to relocate. A job transfer or family situation that needs your attention can be more challenging when you own a home.

Is renting cheaper than buying?

The only way to make this determination is to run the numbers and consider your unique needs and situation.
Also consider the cost of buying a home in the area where you need to live vs. the cost of renting a house or apartment. Another consideration is how much you can afford to spend. If you know your income will rise steadily, consider starting to save for a down payment on a house. If your income is flat, then it’s probably a good idea to rent until you have more financial stability.
If you need or want the flexibility of moving every few years, renting is a viable option that can save you money.

Is owning a home a good investment?

Although home values fluctuate, they tend to go up over time. This typically makes owning a home a better long-term investment. Homeowners also save money on rent, which is not tax deductible.
Homeowners build equity over time as they pay off their mortgage (unless the house was bought entirely with cash, in which case there is already full equity). Equity is a form of value that equates to ownership of the home. Once your mortgage is paid-off you’ll have one-hundred percent equity. Equity can be used to purchase a vacation home or make other investments.

Which option is right for me?

The ultimate decision on renting vs. buying a house could be more than a matter of finances. Consider your income, and your short- and long-term goals for your occupation, as well as your priorities. Will you be starting a family and need a backyard where kids and dogs can play, or are you nearing retirement and looking to downsize your living space and travel?
Getting clear on your life goals and finances can help you make the decision that’s right for you.

Why savvy consumers choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.

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