Although owning a home can be seen as a sign of success for many, not all people have the same aspirations. Deciphering this dilemma is essential for managing your personal finances, so we will analyze what could be better, if rent or buy your usual home.
What is better? Buy or rent a home
While there are those who support the idea of renting, others also show their arguments in favor of buying a property. In the end, this decision can be reduced to the amount of money invested in each case or the convenience of owning or not.
It is something worth finding out, especially if you are thinking about buying a home for the first time.
As for the figures, the percentage of ownership for those under 35 years of age stands at 34.1%, the lowest in the last 50 years. This figure represents half the total possession rate within the United States.
This is combined with the perspective that millennials and later generations see home buying as bad business.
On the other hand, interest rates continue to drop for mortgages, making monthly payments cheaper than rents.
This applies to some parts of the country, especially rural areas. Including all the expenses involved in owning a property, There are 53% of counties where you pay less to own a 3-bedroom house than to rent it..
Arguments in favor of renting a property
When you consider renting vs. buying a home, you should analyze what favors each option. When it comes to renting, think about the following:
Principal balance of the mortgage
Assuming that the average person does not have $ 150 or 200 thousand to pay for a house in cash, you have to resort to a mortgage. If you are approved for this financing, you must understand that the monthly payment for the first 10 years includes more interest than the principal balance.
- Interest: From 2.25% to 2.875%
- Deadline: 30 years
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- Interest: LIBOR + spread
- Deadline: 30 years
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- Interest: 3.13
- Deadline: 30 years
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- Interest: From 3%
- Deadline: 30 years
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- Interest: LIBOR + 2.25%
- Deadline: 30 years
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This is best illustrated with an example:
Let’s say you have a $ 200,000 mortgage with a fixed rate of 4.5%, which gives you a monthly payment of $ 1,014. Of this, the first payment corresponds to $ 264 of principal balance and $ 750 in interest. After 20 years, your monthly payment will include $ 647 for the principal balance and $ 367 for interest.
Account escrow (escrow)
A home with a mortgage is considered an important investment for the owner and the bank. That is why a trust account is established, which takes one twelfth of the monthly payment to pay insurance and taxes. This avoids any liens on the property or an accident that leaves the house destroyed.
In addition, when you put less than 20% of the down payment, the bank requires you to take out Private Mortgage Insurance (PMI) that serves to protect your interests.
The money for this policy is managed through the escrow and serves as a guarantee in case of non-payment. Because this is part of the mortgage, it also reduces your principal balance payment.
Renting offers more flexibility
Among the advantages of renting a house or apartment is the possibility of choosing from a wide variety of properties. Being able to move easily It is more attractive to those who do not want to be in one place, change jobs frequently, or have no family.
Depending on your lifestyle, this option will be more or less attractive.
Reasons to buy a home
People who prefer to buy a house rather than rent, tend to rely on reasons such as:
Fiscal benefits
Those who take out a mortgage have the right to deduct the interest generated by this financing when the property is worth less than $ 1 million.
You can also discount the interest if you ask for a line of credit or a home equity loan for less than $ 100,000. In addition, you can deduct the origination commission during the first year.
Can be cheaper
To find out this, you need to calculate the price-rent ratio of the market where you plan to buy the home. The formula includes the price of a house and the monthly rent for one year.
For example, a $ 150,000 property with a rent of $ 900 a month would give you 13.88 (150,000 / (900 * 12)). The lower this value, the better it is for buyers and an indicator below 20 favors the acquisition.
Comfort and tranquility
In addition to increasing your wealth, an essential advantage for many is the possibility of do what you want with your property. You can renovate, annex, start a business or rent without asking a landlord for permission.
On the other hand, you are not forced to move nor are you going to undergo regular inspections, which often happens with those who live rented.
Buy vs rent It is a decision that can depend on the economic or personal sense. As at Blog Hispano de Negocios we favor the good management of personal finances, we are inclined towards an objective evaluation based on your lifestyle and needs.
