Buying Vs. Renting
When deciding whether to buy or rent, there are a lot of factors to consider - your lifestyle, future plans, budget and financial goals.
Regardless of what people tell you, there are advantages to buying and advantages to renting. Everyone has unique circumstances and that is why it is important that you understand what fits your needs best, prior to making the decision.
Is it better to rent or buy a home in Pennsylvania?
There is no definitive answer to this question. Most people will experience the benefits of both, buying and renting, throughout their lives but the decision on whether to do one or the other is largely circumstantial. If you’re in a position where you are considering a change, this is for you.
Is renting cheaper than buying?
The short answer to this is sometimes. Purchasing will require a higher upfront cost than renting will. The key factor in the affordability difference between the two is time. Rent prices typically increase year over year, whereas your mortgage principal and interest will not. Depending on how long you live in your home, the money you invested upfront can pay for itself as rental rates in your area increase and your mortgage does not. It is important to keep in mind that when you purchase a home, there will be costs associated with the upkeep of it. These maintenance costs can sting, but have the potential to pay for themselves when you cash in on the equity you’ve built.
Lets consider all the fees you pay when buying or renting.
Monthly costs involved with renting include: Monthly Rent, Renters Insurance, Pet Fees, Utilities
One time fees associated with renting: Application fee, Security Deposit, Pet Deposit
Monthly costs involved with buying: Monthly Mortgage, Taxes, Insurance & Utilities
One time fees associated with buying: Down Payment, Closing Costs, Escrow Builds, Inspection & Appraisal Fees
Affordability will largely depend on location. Home prices and rental rates will change state to state and city to city. See below for the average monthly rent on two bedroom apartments in Pennsylvania.
Pittsburgh PA: $1462 (or $17544 per year)
Cranberry Township PA: $1661 (or $19932 per year)
Butler PA: $928 (or $11,136 per year)
These averages do not include utility costs or rental insurance.
Mortgage averages are difficult to determine because they range greatly depending on the area, current interest rates and the individual’s finances.
Average Mortgage Payment in Pennsylvania: $1071 (or $12852 per year)
Mortgage payments typically include the principal, interest, taxes and insurance.
When deciding whether to buy or rent, cost is typically a big consideration. When looking at all of the costs and fees for either option, looking at them from a short term and long term point of view can help in your decision making.
Questions to ask yourself before deciding to buy:
Why do I want to buy a house?
There are a lot of perks to owning a home but it also comes with a lot of responsibility. A home purchase is a big decision. You should purchase a home when you feel ready and prepared to do so, not because you feel pressured or when you find a great deal.
Am I prepared to purchase a home?
Purchasing a home requires preparation. A lot of first time buyers assume they need a lot more money than they actually do but at the end of the day it is an investment and it is going to require some cash up front. To give yourself the advantage, work on your credit score and debt to income ratio prior to moving forward.
How long do I plan to live in this area?
First time buyers typically stay in their starter home for less than 8 years. Ideally, you should live in your first home for 3-5 years.
Questions to ask yourself before deciding to rent:
Does this suit my lifestyle?
Renting can be a good decision for people that plan to relocate, are discovering a new area or need terms with more flexibility.
Is building equity and credit a priority for me right now?
When you rent, your payment benefits stop after granting you the permission to use a space.
What consent will I need from the landlord in order to fit my needs?
Renting typically comes with a set of rules, expressed through your lease. Breaking any terms of your lease can have a negative impact and should be carefully considered before signing anything.
Advantages of Purchasing
The Pride of Ownership
Homeownership is the American Dream. It is an investment to your future that provides you with the feeling of stability and predictability.
Freedom Over Your Space
You can make the space completely your own - from pets, to gardening, to a full renovation.
Greater Privacy
You don’t have to worry about being too loud because your neighbor can hear you through the drywall, sharing a parking lot with other tenants or a landlord that can show up any time.
Real Estate Is An Appreciating Asset
Your home will build equity over time (if you take care of it). You can use this equity to upsize, renovate or cash out on.
Payment Stability
When you purchase a home, your principal and interest payments will remain the same throughout the entire term of your loan.
Tax Benefits
Homeownership comes with tax deductions.
Advantages of Renting
More Flexibility
When you’re renting it is much easier to move than when you own a home. Most landlords require a notice and you could potentially be on the hook until the end of your lease but you don’t have to sell a house in order to move.
Less Responsibility
If something goes wrong with the property -a broken appliance, roof leak etc.- you do not have to worry because it is the landlords responsibility to fix any issues that arise.
Upkeep & Maintenance
In most cases, the landlord is responsible for repairs, mowing, snow removal and leaf disposal.
Next we’ll look at the not so great parts about buying or renting.
Disadvantages of Buying
Upfront Cost
Most homeowners have to obtain a mortgage in order to purchase a home. While most of the cost is rolled into the loan, there is an upfront investment. Inspection fees, title fees, down payments and closing costs can get expensive very quickly. A lot of first time buyers assume they need 20% down, which isn’t the case but that does not mean it will be cheap. I encourage all first time buyers to discuss their options for first time buyer programs with their lender.
Maintenance Cost
When you own a home, you are responsible for upkeep and maintenance. While some things could be covered under a home warranty or your homeowners insurance, you will be required to pay out of pocket for most issues that arise.
Less Mobility
When you purchase a home, it is usually a long term investment. Most first time buyers stay in their starter home for about five years, and this can vary but you should not purchase a home if you plan to move quickly.
Building Equity Can Take Time
The length of time you own your home, improvements you’ve made and the state of the market all play a factor in the amount of equity you will build. In the beginning, most of your mortgage payment goes towards the interest rate on your loan. Making extra payments on your mortgage can have a big impact on the length of your loan and positively influence your equity - just make sure your extra payments are being applied to the principal of your loan.
Market Dependability
The real estate market has it’s own ups and downs. If you need to sell during a low point in the real estate market, you could potentially lose money.
Disadvantages of Renting
Unstable Payments
When you rent, you typically have incremental increases each year. As opposed to a fixed rate mortgage, where your payment stays the same throughout the term of your loan, renting can be less predictable.
You Aren’t Building Value
When renting, your payments go directly to the landlord or rental agency to pay their mortgage and build their equity. When you decide to move, you take no more away than what you brought with you.
You Aren’t Building Credit
Unlike a mortgage, rent payments are not factored into or have an impact on your credit score.
Less Freedom
At the end of the day, it is not your home, so you don’t make the rules. Failing to follow your rental agreement in any way can come with financial penalties.
Less Design Choices
When you rent, most landlords will not allow you to make any cosmetic changes to the property - and if you do, in most cases, your security deposit will pay the price for doing so.
Instability
Renting can be a great short-term option. The downside to this is that your landlord also has a say in how long you will be permitted to live there. If the landlord decides to sell, move back in or not renew your lease, you will need to move.
Conclusion
Deciding whether the best decision is to buy or to rent comes down the the specific individual. What may be a benefit to someone else, may sound like a disadvantage to you. Financial factors, comfort levels and future planning can make the biggest impact on where you call home. Understanding all your options and what you are getting into with either scenario can help you make the most educated decision. If you’re still on the fence, discussing your situation with a financial advisor can be beneficial.