Personal Finance
What's The Real Cost Of Renting Vs. Buying A Home?
As a renter, you're paying your landlord's mortgage, but as a homeowner, you're building equity in your future.
If you’re considering a move, you’ve probably asked yourself whether you should rent or buy. Some people might hesitate to purchase a home because they're waiting for a perfect scenario (that may never exist) and think renting offers more short-term flexibility. While each option has pros and cons, it's typically a better financial decision to own a home than it is to rent one.
If you’re not sure whether renting or buying is the right choice for you, read on to learn about the true cost of each option, and how homeownership can help you build wealth in the long run.
Should I Rent Or Buy A House?
When deciding between renting and buying a home, the decision will largely come down to your personal needs, situation and lifestyle. Is it worthwhile to reap the financial benefits of investing in a house long-term, or are you planning to pack up within a couple of years and move across the country, leaving you with the responsibility of an investment you need to unload before you leave?
If you only plan to stay in your current home for a short time, or want to live in a specific location but can’t afford to purchase a property there, you’re likely better off renting. However, if you have the funding saved for a down payment, or if you’re ready to put down roots, buying a home is likely the better option.
Renting: Associated Costs — While renting is cheaper in the short term, the payments you make will add up over time — and they don’t contribute towards anything you’ll ultimately own. Rent payments can also increase when renewing your lease, which puts you at the mercy of a landlord (unless your state has renter’s protection laws) to decide how much your payments will be. In addition, renting provides less stability, as the landlord can stop renting to you without much warning, forcing you to upend your life whether or not you are ready to leave.
Renting does come with perks though, especially for those looking for less commitment and responsibility. A renter is only responsible for paying rent; the landlord typically handles building maintenance, including garbage responsibilities, cleaning public areas, shoveling and renovations. Additionally, you only need to put down a deposit to rent, which often requires much less capital upfront than a down payment or closing costs.
Buying A Home: Associated Costs — Homeownership is a more costly venture upfront, due to expenses such as a down payment and closing costs, along with maintenance and renovation costs. However, it’s often a more stable and better financial option in the long term.
If you intend to live in one place for many years, investing in a property will prove more worthwhile than paying a landlord monthly rent. That’s because each mortgage payment you make builds equity in your home and gets you closer to owning it outright. You can count on your monthly payments to remain the same, and there’s no landlord to raise the rent or stop leasing the property unexpectedly.
Building Wealth With Homeownership — When buying a home, you’ll likely have to take out a loan to cover certain costs. A loan requires you to put your home up as collateral. You gain equity in your home by making monthly payments. Home equity is the difference between your loan’s remaining balance and the appraised value of your property.
Although it may take time to feel the benefits of buying a home, investing in a property can ultimately help build your wealth. As home prices rise and different areas become more expensive to live in, you may even find that your property’s value is far higher than it was at the time you purchased it.
In addition, when you own a home, you can renovate at your will; there’s no landlord to ask permission or place restrictions on what you can do. These renovations come with a high upfront cost, but they add value to your property, increasing your home equity and personal wealth.
How Much Do I Need For A Down Payment? — One barrier to entry for many potential homebuyers is the “20-percent down rule,” which convention dictates as the “ideal” minimum down payment for a home sale. However, there are other options available that don’t require putting that much cash down.
Certain circumstances allow for homeowners to qualify for mortgages with less than 10 percent down — sometimes as low as zero percent. Many of these loans are offered through VA, USDA, FHA, Fannie Mae and Freddie Mac programs, some of which even offer down payment assistance. With less money down, however, homeowners should expect higher mortgage insurance premiums (including paying private mortgage insurance, or PMI) until their home’s equity is above the 20-percent threshold.
To learn more about homeownership options, and for help going through the mortgage pre-approval process, contact a loan officer at New American Funding to help you get started.
New American Funding Can Help Turn Your Dream Of Homeownership Into A Reality
If you’ve considered all the options and decided buying a home is the right decision for you, New American Funding is here to help. This lender not only offers a variety of mortgage options, both traditional and non-traditional, but it also connects potential homeowners with experts who can help make their homeownership dreams come true. Below are some of the loan options and programs New American Funding can help you with:
- Buydown Loan, which offers reduced payment rates in earlier years.
- NAF Cash*, an affiliated company of New American Funding, which helps you compete with cash buyer offers.
- 5 Year Rate Protection Pledge, which locks in interest rates and allows you to refinance to a lower one down the line (if applicable) without extra fees.
- RE Home Connect, which connects you to realtors who can help with the purchase process.
Contact A New American Funding Loan Advisor
As a homeowner, you are building equity in your home that can be used in the future; renters are merely paying for their landlord’s mortgage. Across the country, potential homeowners continue to pay the mortgage on a home that is not theirs, while they save up money or wait for the perfect time to buy. However, there are solutions to get you out of the waiting period and into your dream home.
In 2022, New American Funding was recognized as #1 in customer satisfaction among mortgage servicers by the J.D. Power 2022 U.S. Mortgage Servicer Satisfaction Study. The company was able to achieve this prestigious recognition through its dedication to helping every client from every background achieve homeownership.
The loan advisors at New American Funding are happy to answer any questions, even if you’re not ready to purchase. They help potential buyers every day with questions about down payments, mortgage rates, PMI, buydowns and more. Owning a home is the universal American dream, and New American Funding is ready to help you achieve yours.
Ready to make your dream of homeownership a reality? Contact New American Funding to learn more about your home-buying options, or request a mortgage quote and get preliminary loan details in less than three minutes.
NAF Cash is fulfilled by NAF Cash LLC, an affiliated real estate company of New American Funding that is managed and operated in compliance with applicable legal and regulatory requirements. NAF Cash LLC does not originate loans or issue loan commitments. Terms and Conditions apply. Not available in all states. MI Real Estate Broker #6502431375. 41050 W 11 Mile Rd, Suite 220, Novi, MI, 48375. Phone 844-344-0531
