Money-Saving Reasons Why You Should Stay A Renter Vs. Buying A Home
Deciding to buy a home can be one of the biggest decisions in a person's life. While owning property is one of the key aspects of the American Dream, recently, it seems that renting has become the more popular and financially safe route. Yes, owning a home comes with a certain sense of pride, privacy, and success, but there are numerous responsibilities and financial costs that make renting seem like a better choice. Read on to learn about some of the lesser-discussed costs and unexpected burdens that come with being a homeowner and decide for yourself if it's really worth it.
You're Going To Need To Pay For Home Inspections
Say you're in the market to buy a house, you make an offer and are accepted. Now, one of your first expenses on your new potential home is an inspection, if not one, then multiple. Before you close on a home, hiring someone to perform an inspection is important so they can catch anything about the structure that may needs repairs or will otherwise become a problem in the future.
General inspections are at least a few hundred dollars. If you want a termite inspection or other specific inspections, this will cost more, leading you to potentially spend thousands of dollars before you've even purchased the home.
People Don't Always Anticipate Closing Costs
After your offer has been accepted and you prepare to close on the house, you'll be faced with closing fees. The lender will then give you a detailed list of what your closing costs will come out to.
According to Zillow, closing costs tend to add around an extra 2% to 5% to the purchase price. Many of these costs include lender fees, interest, escrow fees, appraisals, title or attorney fees, and more. So, if your home costs around $200,000, you're looking anywhere between $4,000 and $10,000 in closing costs.
And Then There Are Additional Closing Taxes
While many monthly mortgage calculators are able to give you a basic idea of how much your mortgage will be each month, including interest, they aren't always reliable. They don't always take various closing taxes into account which definitely need to be planned for.
These extra taxes and insurance will make your monthly payments rise and that doesn't even include mortgage insurance, which you have to pay if you put down less than 20%. Because of all these additional costs, it's important to keep a budget which takes all of these charges into consideration.
Pay Earnest Money Just So People Know You're Serious
In order to prove to the seller that you're serious about purchasing a property, it's typical to include an "earnest money" check. Earnest money is usually around 1% to 3% of the cost of the home and is a deposit made to the seller that acts as a buyer's good faith when purchasing a home.
The extra money gives the buyer extended time to get their financing in order, conduct the title search, property appraisal, and inspections before officially closing. After the seller accepts the offer, the money is put into an escrow account which is usually credited against closing costs.
Down Payments Affect How Much Your Mortgage Is
A down payment is a percentage of the home's purchase price that you pay for upfront, which is usually paid upon closing the deal. While you need to specify your down payment amount in your initial offer, if the seller agrees, you can change your initial offer before closing.
A person's down payment greatly depends on the buyer's credit score, the status of the market, and the mortgage loan that was applied for. Typically, most peoples' down payments range between a minimum of 3.5% and above and beyond 20%.
First Year's Homeowners Insurance Is No Joke
For the most part, lenders will require proof of homeowners insurance before allowing the buyer to close on the property. However, when it comes to homeowners insurance, you almost always need to pay the first year's premium upfront and either on the date that you purchase the insurance policy or upon the date you close on the house.
Insurance prices vary depending on the home's style, location, contents within the home, as well as your credit score, coverage limits, and policy deductibles.
If You Didn't Buy Your House Upfront You'll Have To Worry About Loan Payments
In order to ensure the life of your mortgage, a homeowner must make principal and interest payments for usually 15 or 30 years. Loan payments are part of your monthly escrow payment.
If you have a fixed-rate mortgage, your loan payments remain constant for the entire time that you pay your mortgage. If you have an adjustable-rate mortgage, your rate is attached to a benchmark and your rate varies as your benchmark does as well.
You Need To Pay Property Taxes
Property tax is what a homeowner owes in order to pay for local schools, city infrastructure, and other kinds of local services that are necessary for all communities. Your city or county sets your property tax and your rates greatly vary on the location of your home and its worth, and the rates are expected to change from year to year.
Property taxes are part of your monthly escrow payments in which you pay one-twelfth of your annual tax amount each month of the year.
You Have To Pay Homeowners Insurance
As of 2014, according to the Insurance Information Institute, the average annual United States homeowners premium was $1,132. Like other payments, homeowners insurance can vary from year to year and is based on your home's appraised value, your policy's deductible and coverage amounts, credit score, and more.
Much like your property tax, you pay one-twelfth of your annual homeowners premium with your monthly escrow payment. This is a payment that can be avoided entirely if you were just renting.
Maintenance Costs Fall On No One Else But You
As a renter, it's not that maintenance isn't an issue, but it's certainly cheaper than if you're a homeowner. If one of your appliances stops working, usually, all you have to do is call your landlord and wait for it to get fixed.
If you're a homeowner, however, you are responsible for fixing everything yourself with all of the money coming right out of your wallet. Everything is up to you to fix, such as clogged disposals, chipping paint, and old appliances. These are just a few of the many issues homeowners come across.
Higher Utility Bills Come With A Bigger Home
For the most part, people who are renting tend to live in smaller spaces than those who decide to own a home. It doesn't always make sense to rent a huge place unless you are buying and plan to live there for the foreseeable future. So, if you're buying your first home, something else you'll want to anticipate is higher utility bills.
While it's not always true, chances are, your new space is bigger than any place you've rented or lived before, which means the utility bills will possibly be higher. Also, if you're renting, sometimes your landlord might cover things like trash pickup and water, but not when it's your home.
Furnishing A Home Isn't Cheap
If you're buying your first home, chances are that you're not going to have enough furniture to fill the house at first. This means that you're going to have to go out and buy some. Unless you're okay with all second-hand furniture, buying new furniture is unfortunately never a cheap venture.
Not only is furniture necessary but it's expensive. It's something that people don't always think about when buying a home until after they realize that half of the house is still completely empty after they've moved in.
Home Improvements And Renovations Are All On You
When you're renting a place to live, sure you can make some changes here and there, but nothing very major. That would need to be approved by the landlord, who are most likely not going to approve of you making series changes or improvements to the place that they own. Yet, when you own your own home, you can essentially do whatever you want.
The only problem is that it all comes out of your own pocket or you can take out a home improvement loan. If you ever want to renovate your kitchen or add on a room for a growing family, get ready to pay out of your own pocket!
There's The Possibility Of Taking A Financial Hit
While homeownership is a fantastic way to build equity over a period of time, unfortunately, equity doesn't always develop into profit. This all depends on the market during your time of owning a property. If the home's value decreases or stays the same during your time living there, it can result in a financial loss if you ever decide to sell.
On the other hand, if you're renting, you won't be building any equity, but you also aren't taking any real financial risks since the appraised value of where you live doesn't affect a renter all that much.
It's A Major Long-Term Commitment
After closing on a house, most people can't exactly say that they've made a mistake and get all their money back like returning something to a store. You're legally bound to that property and all of the costs that you are expected to pay.
Otherwise, you might find yourself losing the house, all the money you spent to buy it, and any money that you have put into it. Buying a house requires endless amounts of thought and planning and for many people is a lifelong commitment.
Relocating Is Easy
Unlike owning a home, if you're renting, you can essentially pick up everything and leave whenever you feel like it. Not only is it not nearly as grueling, but it's also usually much less expensive as opposed to moving out from a home that you own.
Furthermore, if you're renting and have to move for work or for any other reason, it's not the end of the world since you can just rent a place somewhere else. Even if you're forced to break your rental lease in a sudden move, you can always sublease or negotiate with your landlord.
Credit Requirments Are Often Less Strict
Although most landlords might still require that you undergo a credit check, it's usually not an incredibly in-depth investigation. Typically, your application is either approved or disapproved based on your credit score and credit history.
As long as you haven't had anything happen to your credit in the past that sticks out like a sore thumb, more often than not the landlord will still rent to you. On the other hand, when buying a house, even the smallest issue with your credit score can greatly affect your mortgage rates.
Sometimes Utilities Can Be Included
Although this isn't always the case, it isn't unheard of for some of your utilities to come paid for when renting from a landlord. Depending on the circumstances, sometimes costs such as cable, wireless Internet, trash pickup, or water may come included as an incentive for people to move in.
This would never happen if you owned your house because every penny that you owe you would be expected to pay, no matter what the situation. Overall, your utilities would be lowers as well assuming that what you're renting isn't as big as a house you would own.
There Are Little To No Responsibility On Maintenance And Repairs
When you're renting a space, responsibility for the appliances you use or other maintenance that might need to be done doesn't fall on you, but on your landlord. If a pipe breaks or your stove stops working, you don't have to go through the trouble of getting it fixed or paying for it either.
All you have to is call your landlord and let them know what's going on and it's then their responsibility to make sure that it gets back in working order.
You Don't Have To Pay Outlandish Fees Upfront
Aside from a security deposit, you don't have to put any money down for a down payment on somewhere that you plan on renting. When it comes to a house, many people watch tens and even hundreds of dollars disappear before their eyes before they can even call the house their own.
All you need to worry about is the security deposit and you're good to go. On top of that, in some cases, many people offer bonuses for moving in renters such as half-off first month's rent and more. When was the last time anyone got a bonus for buying a house?
