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Renting vs. Buying a Home: Things to Think About

Aug 01, 2017

With housing prices still low in many areas and a favorable mortgage-rate environment, people who don't own their home may be thinking about buying instead of renting. Here are points to consider:

Why Do People Choose to Rent?

Freedom to move: If you unexpectedly need to find less-expensive housing or move to a different location, as a renter you won't have to worry about selling a home. And, if you are already planning to move in just a few years, renting is often a better choice financially. "Even if the value of your home goes up during that short time period, the costs associated with selling it would likely exceed your profits," said Evelyn Manley, a Senior Consumer Affairs Specialist at the FDIC.

Perceived smaller up-front costs: For renters, the big initial payout is a month or two of rent as a security deposit. Many people believe it takes tens of thousands of dollars to accomplish the dream of owning a home because of down payments and closing costs. Generally, lenders require 20 percent of a home’s value. What many renters don’t understand is that there are many government and state funded programs that certain banks take part in that allow first-time home buyers to purchase a home with little to no down payment, along with providing assistance for closing costs. Savings Institute Bank & Trust has helped many first-time home buyers accomplish their dream of home ownership while tackling this concern of initial cost through special programs.

No need to worry about major maintenance costs: As a renter, you're unlikely to be responsible for replacing a leaking roof or a broken furnace; however, you’re also at the whim of your landlord. You don’t have a choice of when or how things are fixed.

Perceived monthly costs are lower: Rent-related expenses are perceived to be less than what a homeowner would pay each month in "PITI" — principal and interest on a mortgage, property taxes and homeowner's insurance. As a renter, you will only need to be worried about renter’s insurance. Many renters can actually obtain a home for only a small amount more, the same, or even less than what they’re paying in rent. But big words like “PITI” often steer renters away from the idea of owning their own home.

Why Buy a Home Instead?

Wealth creation: By paying the mortgage each month over many years, you will likely build up equity (the current value of the home minus what you owe on your loan) for a down payment for your next home or for some other purpose, such as retirement. And, if you live in a home long enough to pay off the mortgage, you will have a valuable asset to sell or leave to a family member. "In contrast, after 30 years of paying rent, you will have nothing to show for it in terms of a home that also will serve as your nest egg," said Manley. If you pay off your mortgage, you'll also have one fewer payment to worry about each month.

Emotional satisfaction: You can put down roots in a community you like. Owning a house can be satisfying in itself.

Fixed-rate mortgages add stability: "Landlords can raise rents, but if you buy a home with a fixed-rate mortgage, most of your monthly payment — the part not including real estate taxes or insurance — won't change for 30 years, 15 years, or however long you have that mortgage," said Glenn Gimble, an FDIC Senior Policy Analyst. It's important to remember, though, that taxes or insurance could still go up.

Ready to learn what you can afford? Our Mortgage Consultants are ready to help you accomplish your dream of owning a home. Contact us or stop by one of our Connecticut or Rhode Island locations to get started.