Buying vs. Renting: The Smarter Financial Decision
If you’re renting an apartment or home, you may think you’re saving money each year. Buying a home costs money after all — sometimes a lot of it. But contrary to what many people believe, renting is not always cheaper than buying a home, and certainly isn’t a better way to use your money to your advantage.
Surprised? Let’s talk about why buying a home can save you money in the long run.
Why You Should Buy
Renting has a few pros on its side, but not when it comes to money. Here’s why:
- You never Get Your Rent Money Back – When you pay your landlord, your money never comes back. With mortgage payments, that money gets put towards your principal (after interest and insurance, of course). If and when you decide to sell, you get that money back assuming you sell your house for at least the same amount that you bought it.
- Updating a Purchased Home Pays for Itself and Then Some – When you update your bought home, it raises its value. This equates to more money should you decide to sell. Also, if you plan to refinance, you’ll get more equity when your home is appraised. Update your rental and the only person you’re helping is your landlord.
- Almost All Homes Gain Value Over Time – As long as you take care of your purchased home, its value should increase as time goes by. This means when you go to sell, you’ll likely sell for more than what you paid for.
How To Prepare for Buying a Home
Yes, you do need to have saved up some cash before you can buy your first home. Here are a few things you’ll need prepare for.
#1: Down Payment
You don’t need to put 20% down when buying a home. FHA loans only require 3.5%, but if you can qualify for a USDA or VA loan, you won’t have to put anything down. Most first-time home buyers spend between $150,000 and $250,000 on their first house. This equates to a 3.5% down payment between $5,250 and $8,750 (assuming you pay full price for the home).
#2: Closing Costs
Closing costs can range anywhere from 2% to 5% of the purchase price. For a $250,000 home, this means you could pay between $5,000 and $12,500 and between $3,000 and $7,500 for a $150,000 home. Many buyers choose to not haggle as much on the price with the seller and instead ask for them to pay for closing costs. Another option is to roll closing costs into your loan if you’re able to.
You can use a mortgage and closing costs calculator to estimate not only what you’ll pay at closing, but what you’ll likely pay month to month on your mortgage.
#3: Repairs and Upkeep
Most home buyers find something they need to repair when they move into a new house. These are usually issues that weren’t discovered during the home inspection or weren’t updated by the seller. Additionally, most home buyers decide to put approximately 1% of the purchase price aside each year for periodic maintenance and other surprises. Plan to buy a $150,000 home? You’ll probably need approximately $1,500 each year to keep everything air tight.
Herring Bank has a team of expert mortgage lenders that are ready to answer any questions you have about home buying. Contact our team of mortgage experts today by calling (866) 236-4779 or by requesting a call below.