Rent vs. Buy Essential Details

Realizing the dream of owning a home is a major life decision. The journey is rife with complexities and often the source of grey hair and late nights.

Let's take some of the anxiety out of the equation by breaking down some of the fundamental considerations of the rent versus buy dilemma...

Now lets cover these in a little more detail, including some basic pros and cons for each side to consider.

If you've frequently moved in the past, you need to consider how home ownership will impact this ability in the future. Generally, it will take several years before a home owner may realize enough of an increase in property value to be able to move without a significant loss. This means a new job in another location may not be an option. Furthermore, adding a new bedroom for a baby or another family member might have to wait. If you buy a house, make sure you can stay committed to living there for 5 years in order to avoid financial loss.

Owning a home will require a considerable amount of maintenance, especially if the home is older. It's true you can hire contractors for the work, but they will charge a premium and often require a minimum number of hours before they will agree to a job. If you can perform basic maintenance such as patching drywall or painting, you will be in a much more comfortable position to own. If, on the other hand, you dread that kind of work, renting will suit you better as those tasks fall on the landlord.

While you may qualify for a mortgage to cover the home you are interested in, a mediocre credit rating will adversely affect the interest rate you get. Even a small incerase in interest rate can result in thousands of dollars in interest, driving up the monthly minimum payment. Fixing your credit rating will likely be worth the effort. Renting while you straighten out your credit will pay out considerably when the time comes to finance.

Keep in mind the owning a home with less than 20% equity invested will likely require the monthly payment of mortgage interest called PMI. This can add a significant amount to the monthly cost of a home. The closer you are to the 20% equity (by saving more of a down payment), the more you can lower your monthly mortgage cost (and the more principal you pay off).

Owning a home in a market that isn't developing will adversely impact the long-term property value. Make sure you have done your due-diligence on the local community. Without an increase in property value, owning that home will provide minimal if any investment value, while exposing you to the very-real risk of decrease in property value and the dreaded toxic mortgage.

Property taxes will add a considerable amount to the monthly mortgage cost. If you choose to decline escrow, be sure you have the financial discipline to save appropriately. typically, property tax payments must be made with 1-2 months notice and the payments can easily be thousands of dollars.