Buying vs Renting a House - Is Paying a Mortgage Better than Renting?
Is it better to buy or rent?
If you can pay rent, you can probably pay a mortgage payment, too. If your job is secure, or you know you could get by and still pay your mortgage if you lost your job, then you might consider buying a house instead of throwing your money away on rent.
According to a recent report by CNN, it is actually cheaper to buy than to rent. Why? Home prices have gone down, as have interest rates. Rent payments are often higher than monthly mortgage payments.
The biggest hurdle to buying a house is usually coming up with the down payment. If you can come up with that lump of money, then you should consider investing in your own house instead of continuing to put money into the pockets of someone else.
What is equity?
The equity in your home is what you have invested in it monetarily above what you owe. For example, if you bought a $150,000 house, and you now owe $120,000, you have $30,000 in equity in the home.
How to pay off a mortgage faster
With a mortgage, every month you are paying on something that you will, hopefully, eventually own. With rent, you are paying nothing that you will ever get back. I've always heard that if you plan to stay in a house for at least three years, then it is worth the return to buy rather than rent.
After three years, it is likely that you will have built enough equity in your house to at least break even when you sell your home by getting back the amount you have paid into it. When you rent, you never break even. You lose everything. You lose every penny that you put into a rental. With a home, you might even make a profit over the original price.
By paying just a bit more every month, you can also pay down your mortgage and build equity much faster by knocking off interest. Just designate $100 (or more or less!) every month toward the principal, the amount of the loan that you owe besides interest. This amount will be taken from the loan amount, rather than just off the top with interest. This is another way of putting away savings for yourself, as the equity in your home grows faster than it would if you simply paid the minimum payment every month. Paying down the principal will also reduce the amount of interest you will have to pay over the life of the loan.
Home ownership gives hope of an easier life, too. Eventually, it is very probable that you will pay off the mortgage. With rent, you never have the hope to finally be free of that monthly payment.
Practical Tips on Buying vs. Renting
- Seven Time and Money-Saving Tips For First Time Home Buyers
Should you rent or buy a home? It all depends. Here's what you need to know along with seven important tips for first time home buyers.
You can improve your own property!
With owning your own home, you don't have to check with a landlord if you want to paint the walls or replace the front door. You just decide what you want to do and you do it.
Home projects can be fun and exciting. With my first little house, I had a porch added to the front, something that would keep the rain off the front door and give a protected seating area. I added a bench and a couple of chairs, making my new cozy spot a popular hangout for my buddies and me in graduate school. I enjoyed that porch immensely, and it has added to the attractiveness and value of the house.
In my current house, I added a wood privacy fence shortly after moving in. It was exciting to be able to do that for my dog's safety and my privacy from my neighbors. When I plant tulips or bushes, I know that they are for my own property's enhancement, not that of my landlord.
I have added insulation in my attic, an attic fan in my hallway, and silver tube skylights in my kitchen. I have treated and painted the concrete on my patio with a colorful heavy-duty paint to withstand weather and cat claws. All of these improvements have enhanced my home and made my life in the home more pleasant.
Of course, home repairs are something that you have to pay for yourself when you own a house. You can't just call the landlord to fix the problem. Still, when you pay for these home repairs and improvements, they are on your own property for you to enjoy. In addition, home improvements can increase the value of your property if and when you decide to sell.
Home Buying Kit for Dummies--or First Time Buyers! Or Perhaps Buyers Who Just Want to Be More Prepared!
Is it EVER better to rent?
There are reasons that it may be better to rent for a while. Many first time buyers can't afford a down payment. That chunk of money may take a while to save. In my twenties, I lived in a cheap studio apartment for five years. It was cramped, yes, but life went on, and five years later I was putting a down payment on my first little 800 square foot house. I was ecstatic!
If you move a lot for a job, renting may make more sense for you. Remember the three year guideline. How long do you think you'll be at that address?
Mortgage payments often are less than rent payments, but there are other things that may prohibit your being able to purchase a house for a while. If owning your own home is important to you, consider sacrificing in the meantime by looking for a place you can rent fairly cheaply in order to save for your future home.
Need More Help? Here's the Complete Idiot's Guide to Buying a Home
Owning your own home
I love having my own house. It's not just a place I'm staying that belongs to some landlord. The house is mine. Well, sort of. It's mine and the bank's. But eventually, sooner rather than later with extra payments that I make, it will be all mine.
I'm in a bigger house now, but I was able to keep my first little house to use as a rental property, which basically means someone else is now paying the mortgage for me. What a great investment! That little house is a source of income that will eventually be mine free and clear.
I plan to go into my old age without a mortgage or rent. I can focus on utilities, food, health insurance, and other necessities. No matter how tight money might be in the future, I will be assured of a place to live rent-free. To me, that means financial freedom and peace of mind.
I've never regretted living frugally to save money for a down payment for a house. I've never rued that day I signed the mountain of papers tying me to a house. Even when I have unexpected and painful expenses, I accept them as part of my investment, the ups and downs of owning a home. Having my own place to call home is a great feeling. Buying a house was one of the best moves I have ever made.
- How to Pay Your Mortgage Off Early and Finish Paying Forever
This hub explains the advantage of paying your loan off early, and provides some simple ways to pay off your mortgage early.