Advantages of renting a house instead of buying it
Are you debating whether to buy a house or keep renting? There are advantagse to buying which are heavily advertised by all the businesses benefitting from your purchase (banks, other home owners, home sellers, real estate agents, even contractors who benefit from the necessary repairs that the seller will have to do in order to sell the place..) but there are just as many advantages to renting - which besides your landlord nobody has a vested interest in publishing.
Here are the advantages of renting:
- when you buy, in the beginning your monthly payment may be higher than comparable rent. Keep in mind that a buyer (owner, debtor) has to pay interest, (usually) principal, property tax, fire insurance and possibly HOA (home owners association) fees. Example for the town I live in:
$600k home, 20% down payment. Leaves a 80% = $480k loan at 6% with 30 year amortization, the monthly payment may be $2400 (interest), $400 principal, $200 HOA fee, $90 insurance - total is $3090.
To rent the same place would be only $2000.
Of course in 10 years, it would look different. Insurance and HOA fee may have doubled then, total payment is then around $3600. Rent may have doubled also - $4000. Advantage for the home owner by that time.
- There is a risk of home values falling, at least 'temporarily'. Temporarily means for up to '10 years' which is a pretty long term in most people's book. Ideally you buy a place, live there for 20 years and don't bother tracking neighborhood sales. This brings us to the next issue:
- 'flexibility'. If you are young and your situation is about to change within the next 5-10 years, then buying a home may be the wrong choice. Such changes would include 'getting married', 'having (another) child', 'moving for job reasons'.
- If you rent, you can keep your savings which you'd use for the down payment. On a 600k home the down payment would normally be 20% = $120k. Quite a lot of money! It could be invested in stocks, money market accounts, CD accounts etc etc.
- If the home prices are so high that you cannot afford a 30 year term fixed mortgage and instead have to choose an adjustable rate, then you are betting on various things.. that the home will keep its value and you will be able to refinance once the initial fixed term is over or that interest rates will not go up too much. By renting you don't have to sign these risky loans.
- No worries about repairs - when the heater breaks, just call your landlord.