Is it better to rent or buy?
Deciding on whether to buy or rent is one of the biggest financial decisions you will ever make!
At some point in life many adults will have an important decision to make: should you buy or rent a home? There are many significant points to consider and there really is no completely right answer. Renting may be the best option for some while buying is the preferable path to take.
A Forbes.com article released in March 2014 stated that buying a home is now '38% cheaper than renting in the US.' This statistic is based on mortgage rates and home prices in the country, primarily among the 100 largest metro areas. Therefore, how much cheaper or expensive buying is compared to renting can and will change throughout the year.
It's important to keep in mind that there are several costs associated with both buying and renting. Let's start with renting...
Cost of renting
Rent. As a renter you will obviously have to pay rent to the landlord, which is usually in monthly increments. The lease that you the tenant and your landlord signs will detail how much rent is due every month and the late fee payment.
Utilities. On top of rent you will most likely have to pay utilities, including water, electricity, gas, trash, Internet, cable, etc. Some landlords will bundle utilities with the price of rent.
Broker's fee. If a broker helped you find a place to rent you should expect to pay a fee to the broker for their time and help. This is common with relocations and situations where the tenant isn't familiar enough with the area.
Renter's insurance. Many landlords will require you purchase renter's insurance to protect you and the property from potential damage.
Cost of buying
Mortgage payments. Unless you pay for your home in cash you will have mortgage payments to make. These payments will be determined by many factors, primarily the amount of the loan, the duration of the mortgage, and the type of loan.
Earnest money deposit. The earnest money deposit is consideration...this is how the seller will know you are a serious buyer. This is necessary for many real estate transactions.
Utilities. Even though you are on your way to owning your house you will still have to pay utilities similar to if you were renting.
Taxes. Based on your marginal tax rate you will have to pay a particular amount for property taxes and mortgage-interest.
Closing costs. These are costs that may have to be paid no matter if you are selling or buying, it depends on the situation.