Most of us have heard the phrase “The American Dream” while sitting around a family dinner, at a first time buyer seminar, or in a carefully curated commercial vying for your attention. To each of us, this phrase carries a slightly different meaning but one of the most prevailing sentiments is centered around home ownership. Roughly two thirds of the country have achieved that “dream” of buying a home while one third continue to call themselves renters. Many of these renters may be folks that are waiting for their chance to buy but clearly, a high percentage of these renters are long term or permanent renters. Do you ever wonder why someone may choose one option over another? We sit down and explore buying vs renting and the pros and cons to each.
Why Become a Buyer?
Most buyers started off at one point as renters. The road to becoming a buyer starts long before browsing Zillow and may grow roots for you in early childhood. It truly takes a village both in planning and people fighting alongside you. Some of the pros and cons of buying can be found below. These, along with other load bearing criteria, will help determine if buying vs renting is right for you.
- Credit Score – Exceeding or falling short of certain thresholds can ultimately determine the interest rate of your mortgage. Credit exceeding 740 will often yield the lowest interest rates while a score below 620 may not even allow you to qualify for a loan regardless of the rate. It’s important to maintain quality credit and to check it well before you are looking to buy a home.
- Down Payment – The gold standard is 20% down but that is far from achievable for most buyers. Even though this may allow you to avoid additional interest on your mortgage, better known as Private Mortgage Insurance (PMI), it may be an unattainable financial benchmark. You may be better off considering less down but for every action there is an opposite reaction. You may find yourself stuck with a higher monthly payment or in hot markets, your lower down payment may make your offer less attractive to sellers.
Note: Many first time buyers in the Boston market are borrowing or being gifted money from family to secure a home. This often involves hundreds of thousands of dollars!
The Pros and Cons:
- Maintenance Costs – As a renter, you don’t find yourself financially responsible when the roof is in need of replacement. As a buyer, this cost is likely to fall to you in the form of a shared cost (condo) replacement or a full burden replacement (single family). Not everyone has $12,000 handy if the roof needs replacement; a major con for those seeking a more stable housing expense.
- Equity – While there is no guarantee of equity gain, this is often the biggest argument used to convince renters to become buyers. Buying is a form of forced savings that allows you to invest in what is historically an appreciating asset and seeing your stake in that equity grow over time. Equity can be used down the road to buy a new home, cash out to allow for disposable income and or repairs/renovations.
- Customization – When you own, you often have a lot of latitude to make a great home a dream home. This can be restrictive in an association but you certainly have a lot more freedom as an owner. Whether you are looking to spruce up a tired paint color or looking to to replace the exterior siding, customization is a huge plus that renters do not enjoy.
Life as a Renter:
The first stop for those just leaving their childhood home is often a rental apartment. While it may seem like just stop 1 to many, it is both a stepping stone and a permanent living arrangement for many people. When considering buying vs renting, renters may feel unable to purchase, not yet prepared to do so, or simply see no value for them to ever own a home. If you feel like you are in the minority of Americans, you would be right, but in this case the minority is tens of millions of people. There are many reasons why you may want to consider renting as a more permanent option.
- Screening – While buyer screening is invasive, those that have never rented and suddenly find themselves doing so may find the process is not that different. Standard applications ask for your bank account number, credit references, and social security numbers. You are often providing your paystubs, personal financials and or your tax returns to prove your worthiness. This can feel quite invasive and seemingly overkill for “just a rental.”
- Up Front Costs – Landlords are often asking for first month’s rent, last month’s rent, and a full month security deposit. If they choose to work with a broker, you may be stuck paying a full month’s broker fee or perhaps more depending on the agency and location of your market. Many renters may find paying 10’s of thousands of dollars up front before occupancy to be nerve racking and not something they feel comfortable with. Unfortunately, this is a standard process, particularly the less qualified your application package appears.
The Pros and Cons:
- Freedom – One of the main reasons people rent is the uncertainty of what their future plans hold. A mortgage feels like an anchor so with options ranging from multi year leases to month to month agreements, renters possess more control over the ability to change their current living situations. This may allow someone the opportunity to pack away all of their possessions and travel the world without a carrying cost like a mortgage. Perhaps life events such as children or family members are added to your living quarters, it may be easier to find a new rental quickly as opposed to selling then buying a new home.
- Maintenance – As mentioned above, maintenance cost is largely if not exclusively relegated to the owner of the unit/property. There may be some need for tenant paid maintenance, but this is almost exclusively relevant only if a tenant causes excess change or damage to the property. This allows costs to stay low and often remain fixed, at least during a lease term, over a long period of time. While you often hear that paying rent is like throwing money away, there is always a cost to having your own home. Focusing on the cost of living and avoiding large maintenance bills is a primary reason renters make a potentially temporary life decision more permanent.
- Lack of Say – While freedom can be, well freeing, it is a 2 way street in rental real estate. Many renters excitedly move, pay what feels like a down payment on a home, settle in and find out their landlord is selling. Your rights are only protected by your lease which likely has an expiration date no more than 12 months out. You are also subject to rental increases (no restrictions in Massachusetts), change of pet or parking policies or any number of other changes that may make it untenable for you to sign on for another year.
There are numerous reasons with the buying vs renting debate beyond these that a person or persons might choose renting over buying or buying over renting. The notion of homeownership being superior to renting is pervasive in the real estate industry and within the minds of the general public. While there are without a doubt some amazing pros to becoming an owner, they are plenty of cons that make it a process many will never tackle. Younger generations value stability and technology in their apartments but also want the flexibility to travel or upgrade as their income shifts. The dream is different for us all but one common thread is we all value a quality place to rest our heads at the end of the day; this is a right not afforded to us all.
If you would like to talk with one of our licensed Realtors® to discuss this in greater detail, contact us today!