WHAT IS THE PURPOSE IN RENTING IF THE RENT IS MORE COMPARED TO A MORTGAGE?

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Buying or renting: which way to go? This one question frequently asked by individuals getting into their first home or those contemplating retirement. For so long the answer has been bought. The crash in the prices of houses, along with low mortgage rates made it cheaper to buy compared to renting. Buying a home became the best investment in this regard. To be honest, individuals will always have two options only when it comes to getting a place to live and eventually call home: buying or renting.

While homeownership is the cornerstone of the American Dream, is not the best option for everyone. This does not mean renting is the best alternative. In fact, there is no right or wrong option as far as the decision on whether to buy or rent a home is concerned. Since home buying is a huge investment for many individuals, it is wise not to rush into decision making. A decision should be made based on personal circumstances. You can get more information on Instant Loan

The Shift

As outlined earlier, for long, home buying has been perceived as the best option because of low home prices as well as low mortgage rates. However, there is a change in tide. The fast-rising prices coupled with high mortgage rates have moved the calculation to rent. According to realtor.com, the total monthly cost of acquiring and possessing a home occupied are currently up 14% than the previous years, three times more than the annual increase in rent rates across the nation. Besides, the average figure of housing markets where it appears cheaper to rent than buying is increasing day by day. Apart from upfront costs such as down payment, increasing monthly costs scare away individuals from purchasing.

Home prices dropped significantly following the financial crisis along with the subprime mortgage bang. A lot of homes, a number of millions, underwent foreclosure and were traded at bargain prices. The worth of homes to end with bottomed out the year 2012 and then started to take off. In the course of the last three years, the gains accelerated quite intensely and currently, houses are valued more compared to the extravagant peak of house thriving back in the year 2006.

The latest increase in the prices of homes is attributed to the imbalance between demand and supply within the market. The demand has surpassed supply by a huge margin. This condition has favored the move back to rent, even though there has been a large increase in rents within the past few years. From the statistics of home and rent costs in July, purchasing a home was relatively cheaper compared to renting in only 3.5% of US counties. This is a significant drop from 44% a year ago.

What if the cost of renting is more compared to a mortgage?

Even in a situation where a mortgage is cheaper, renting may still be the most appropriate option. Why? Renting and plowing back the savings made, in general, will outdo possessing and building home equity when it comes to wealth creation. This is in accordance with a study at Florida Atlantic University department. For the very first time renting outclassed buying since the year 2010. Out of the 23 markets, renting was the best investment in 16. The implication of wealth creation is the main point to be emphasized here. Conventionally, homeownership has been the most significant source of household wealth making. However, with the demand changing in favor of renting, market forces will lead to reduced home prices.

There is yet another reason why renting is a better option even in a case where a mortgage appears cheaper. Well, still the main reason is financial but from a different perspective. While the overall cost of a mortgage may be less than renting, the down payment is often too expensive to be afforded. In addition, some personal conditions may not favor a mortgage. For example, a person could be a poor credit history, be in a lot of debts already, or in the course of establishing their credit.

Besides, when an individual rent, repairing the home is even the yard upkeep is not part of his or her responsibility. In contrast, if people own homes to repair and maintenance is their sole responsibility. Extreme maintenance is a discouragement to many people. Furthermore, persons who intend to shift to another location after a certain period of time will definitely prefer renting to buying a home. They will avoid the annoyances of real estate payments as they move to another residential area.

What is more, negative changes in employment or even a financial condition can make it difficult for one to make mortgage payments. In addition, if one opts to buy a home, he or she has to invest in maintenance to prevent a drop in value. But still, even if there is a lot of maintenance practices, the value of a home may significantly drop for other reasons. In a scenario where the neighborhood selected is wrong, there may be negative impacts in buying a home. Inability to draft a realistic budget projection prior to buying a home can result in a lot of stress, especially when an unforeseen event happens.

Advantages or Renting

•    The upfront costs and paperwork are less

•    One maintains the freedom to be mobile

•    Maintenance and repairs are not the responsibility of the tenant

•    No worries regarding the fall in home values

•    You have an opportunity to build credit if the owner submits rent reports to credit bureaus.

•    An exemption from property tax bills, unlike buying.

Conclusion

The decision to either rent or buy a home is personal. The two options have both merits and drawbacks. A number of factors may be considered before arriving at a final decision. However, it has become more beneficial to rent than to buy a home, even in a case where the mortgage is cheaper. The real costs associated with homeownership is too high than many people can anticipate. So then, do the math!

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