One of the most daunting decisions in today’s real estate market is whether to rent vs. buy. With historically low inventory nationwide, soaring property values, steadily increasing rental rates, and competitive mortgage rates, many are left scratching their heads, wondering what the best solution is for their housing needs. The Traverse City market is no exception.
PERSONAL CIRCUMSTANCE
There are, of course, pros and cons to both renting and buying. Personal circumstance is one of the first things to consider, and you must ask yourself some questions.
- Are you planning to stay put for more than a couple of years, or do you intend to move to another city in the next year or two?
- Is your credit score in good standing? Will you qualify for a mortgage loan?
- Do you have savings to apply towards a down payment on a home purchase?
If you’ve answered these questions, and still find yourself wondering what direction is best for you, consider the following.
RENTERS HAVE FEWER WORRIES
Renters don’t have to worry about unexpected expenses resulting from a hot water heater giving out and flooding the basement, a backed-up sewer line, or a furnace that stops working in the middle of a blizzard. They also don’t need to budget for scheduled maintenance and upkeep such as roof replacement, exterior painting, window replacement and association dues.
Additionally, the average rental contract is for 12 months, meaning that if a renter doesn’t like the neighborhood or school district they are in, or find they just can’t live with the low water pressure and highway noise in the home they are in, they have no further obligation to the property after their 12-month lease, and can easily move on to another home.
HOMEOWNERS HAVE INCREASED COMMITMENTS
Homeownership, on the other hand, comes with these increased commitments and responsibilities. Financial responsibility to keep the home and its components in good repair; physical responsibility to upkeep the home and keep the property in an aesthetically pleasing condition, and the commitment to care for the property until it has been sold. All of this can pose some risk, as nobody can predict exactly where the market will take us and how quickly a home will sell in the future.
PROS AND CONS – TANGIBLE AND INTANGIBLE
However, owning a home comes with many benefits, both tangible and intangible. If you are renting, you may find that your landlord continually increases your rent year after year. When you own a home, and have a fixed-rate mortgage loan, you know that your principle and interest payment will never change for the life of the loan. Additionally, while you may desire to stay put in the home you are renting, your landlord may choose to not renew your lease at any time, leaving you unexpectedly looking for housing. Home ownership never leaves you in this predicament.
Also note, the simple pride of homeownership cannot be understated. Not only is purchasing a home typically the largest financial transaction a person will make in their lifetime, it is also one of the major life events a person will experience, right up there with graduation, marriage, and the birth of a child. So much joy and satisfaction can be found in the process of financially planning for and purchasing a home, and subsequently decorating, furnishing, and caring for that home.
BEST BENEFIT OF HOMEOWNERSHIP – EQUITY
At the end of the day, however, the number one benefit of homeownership—of buying vs. renting—is the financial impact of building equity in an asset. A home purchase is an investment, and should be viewed as such. This is not to say a home purchase should replace other investment strategies and a diversified portfolio, but it should be considered a tool for increasing net worth and therefore building wealth. Almost every financial investment comes with inherent risk, but real estate tends to fluctuate less than the stock market so is a generally safe investment option. Your Honor Bank Mortgage Expert can offer you guidance when looking at your home as an investment in your future.
DOLLARS AND SENSE — EXPLORE YOUR OPTIONS
Now it comes down to the numbers. Your Honor Bank Mortgage Expert can help you determine if how much you can afford and can preapprove you for a mortgage or give you guidance on saving for your first home.
Things to consider when looking at your mortgage options:
- Down Payment – How much do you have saved currently, how much will you need and will you have help from family?
- Type of Mortgage – Will you want a fixed-rate mortgage loan where your monthly payment for principal and interest never change, or a variable rate that might offer a lower interest rate but adjust over time? You’ll also want to consider the length of the loan term as it will determine the interest rate that works best for you.
- Interest Rate, Costs and Fees – With interest rates still at historically low levels, you’ll want to compare your rate, costs and fees and make sure you are not getting a low rate but paying higher costs and fees and vice versa.
- Additional Costs – There are a few additional costs associated with the purchase of a home, including property taxes, insurance, possible association fees, and closing costs that you’ll want to consider. Some of these expenses may be balanced by the mortgage interest tax deduction if you itemize your tax deductions rather than taking the standard deduction. You’ll want to consult with your tax advisor.
DOWNPAYMENT BLUES?
If homeownership seems like the right choice for you, but coming up with a down payment is your biggest hurdle, make sure to talk with us at Honor Bank. We can discuss the down payment assistance programs. And we can also review your financial situation to discuss ways to save/secure your down payment.
At the end of the day, everyone has a unique situation and you must decide if it is in your best interest to rent or to buy. Honor Bank can help you understand if you are qualified to purchase a home, and what it will mean for you financially. Your licensed Real Estate agent can help you navigate our competitive market. Always remember that purchasing a home will help you to build wealth, and should be considered a long term financial tool to build equity and net worth. And you will always have a place to come home to, that is all yours.
