Is Renting More or Less Stressful Than Owning?
Many folks think that renting a home is a financially smarter option than owning. They figure with the closing costs, which includes appraisals, attorneys fees, points charged by the lending institution, and mortgage insurance, renting just sounds like the money saving option. Additionally, an owner must pay property tax.
But that view is shortsighted. Over the long term, owning is usually the better option. Although there are initial costs for the buyer, that buyer builds equity over time and owns a bigger share of the home with each mortgage payment. And real estate has proven the best long-term investment – after all, they’re not making any more land.
According to the U.S. Census Bureau, cost burdened homes are defined when a renter or owner pays 35% or more of their income on their monthly household costs – mortgage, utility bills, and property taxes, etc.
Homeowners, according to the Census Bureau, who are classified as “cost burdened” represent 20.9 percent in 2018 (latest figures available). A decade ago, that percentage was 28.8%. The figure for cost burdened renters stands at 40.6%. These renters also lack the option of refinancing. If they suddenly are in need of funds – they have no equity.
Additionally, in the last few years, rents across the country have seen steep increases. Owning by contrast has become cheaper due to very low mortgage rates - as of today, a 30-year fixed mortgage rate stands at about 3.6%.
CoreLogic reports that the typical monthly mortgage payment (including interest) in the U.S. has decreased 4% since 2005. The monthly cost to rent a single-family home rose 36% during that same period.
Because of these historically low interest rates, owning is cheaper than its been in many years. And the equity you build is a valuable method of increasing wealth and improving your credit rating (if you make those payments on time). Additionally, the pride of ownership cannot be overstated.
And as alluded to earlier, real estate is an investment which has shown steady appreciation over time. So, while you’re building equity (ownership), your home may be rising in value.
When buying, a careful professional inspection is imperative. An inspector can identify trouble spots which may be costly to fix. If these trouble spots are identified, the prospective buyer can request the owner to repair them or reduce his price for the home.
Also, when filing taxes, those who itemize can write off their mortgage interest payments. There are no tax benefits to renting.
A final thought is that a fixed mortgage cannot go up -you know what your going to pay monthly for years to come. If renting, a landlord is free to raise your rent each time your lease expires, depending, in part, on various state guidelines.