Buying vs Renting

There are many factors to consider when determining whether to purchase or rent your next home. Everyone’s situation is different, so we’ve gathered some basic information to help with your decision making process:

Initial Costs
Renting generally requires a security deposit and purchasing a home generally requires a down payment. Although some mortgage loans offer 100% financing, the minimum down payment is typically 3% to 5% depending or your situation. You will also want to look into the cost for a home inspection in your area.

Monthly Cost
When estimating your monthly rent payment, make sure to include renter’s insurance. Keep in mind that rental rates and renter’s insurance have the potential to increase each year. When estimating the monthly payment for a mortgage, make sure you are also including the cost for property taxes and insurance. If you have a fixed rate mortgage, your mortgage payment will stay the same throughout the life of the loan, but your taxes and insurance could fluctuate. You can use the following calculator to estimate your mortgage payment:

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Maintenance
Maintaining your home is very important to consider when deciding whether to buy or rent. If you are renting, you do not have to pay for maintenance. When you buy a home, maintenance will be an out of pocket expense. Also, when you rent the landlord takes care of actually completing any maintenance/repairs. Purchasing requires you to know how to perform the maintenance or hire someone to do it for you. With that being said, when you rent you are at the mercy of the landlord in terms of customization and timeline. You don’t get to choose exactly what you want done or when it gets done. When you buy a house, you are the decision maker.

Pets
Having pets will also affect your decision making process when looking for your next home. If you purchase a house, having pets is not an issue. However, if you decide to rent you may be limited on the options available as not all rental properties allow pets. If they do, there are often additional costs such as a pet deposit, monthly pet rent, and cleaning fees when you move out.

Estimated Length of Time in Home
You should also consider the length of time you are planning to stay in your home when determining whether to buy or rent. If you are planning to move in the next couple of years, renting a home might be a better option for you because the cost to buy and then sell wouldn’t be worth it. However, if you are planning to stay there for many years, purchasing is likely the best option because you are building equity.

Risks
Purchasing a home is an investment and can provide you with financial security in the future if you have built equity. Renting is not an investment as your monthly rent goes to the landlord to cover their expenses and generate profit. However, a mortgage poses a greater financial risk than renting because it is a big responsibility and you can lose money if you sell when the market is down. With that being said, renting has the risk of the landlord selling the home.

When You Move
When you move out of your rental property, you will hopefully receive your security deposit back as long as everything looked okay. When you sell your house, you will receive money from the sale minus the remaining principal balance, broker’s commission/fees, applicable taxes, and any other closing costs. The more home equity you built, the more money you will receive when you sell.

Deciding to Buy
If you decide to purchase a house instead of renting, contact our mortgage team at 217-278-7700 or mortgage@uoficreditunion.org to help guide you through the process and answer any questions you have. As financial coaches, we’ll make sure you secure the right rate and term for your individual financial situation.

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