Making the Smart Choice: Buying vs. Renting a Home in 2018

There are two very distinct paths that people take when it comes to property ownership. Some people can’t wait to buy their first home, even if it’s a tiny fixer-upper starter home that needs a lot of TLC. The prospect of being a homeowner is simply exciting and you can always work your way up from the first place. Then there are people who have rented their entire lives. In many cases, their parents rented and their parents rented before them. You may have gotten used to budgeting for rent and it leaves you with some wiggle room when it comes to living and working locations. But you’re also never really putting down roots anywhere and, more importantly, that rent money isn’t benefiting you in any way. As we roll deeper into 2018, it may finally be time to consider buying a home and leaving renting behind.

The Difference Between Equity and Rent

If you’re debating whether it’s the right time for you to buy a home or keep renting, it helps to understand the most profound difference between the two: Equity. The best possible argument for buying is, in fact, incredibly simple. It’s all about where your money goes.

When you pay rent, it’s like booking a hotel room for a month. The money is gone forever, accepted by your landlord so that you can live in a house they own. Let’s consider a small house that rents for about $800 a month. Every year, you pay nearly $10,000 for a home you don’t own and that money is gone. Let’s say you stop renting and buy a slightly larger house with a mortgage payment of $800 a month, but you’re not paying it to a landlord. The money goes to the bank holding your mortgage and turns into equity which, in turn, increases your net worth, improves your credit score, extends your potential loan amount, and will leave you with a very valuable asset when you’re done.

Considering Mortgage Rates and Home Prices

Another deciding factor in choosing when to finally put down permanent roots is how financially strategic your timing is. In 2017, mortgage rates hit a record low meaning that the additional cost beyond the price of a house was as low as it has ever been. Since then, mortgage rates have begun to ‘recover’ from their dip but they’re still not back to what has been the established industry standard. If you have enough saved to make a down payment this year or perhaps next year, you can still catch the benefits of low mortgage rates.

You should also consider the price of homes, particularly in the regions and neighborhoods you’d like to settle. With the constantly rising population, press of people moving to the cities, and the fact that housing construction is not keeping up with demand, home prices are rising steadily. While there will always be unique opportunities with great properties for low prices, it’s best to jump in as early as possible then watch with satisfaction as your home value rises with you as the proud owner.

Where Does it Leave You?

Among the closing points when deciding whether you want to rent or own a home of your own, is where you want to be in 30 years, the standard length of a mortgage. After 30 years of renting, you will be out approximately $300,000 in rent payments. Pay the same amount in mortgage payments every year and you will be the proud owner of $285,000 home (calculating for interest) which can then either be held as a valuable asset, used to leverage bigger loans, left to your children, or it can be sold, quite possibly for more than you initially paid if the value has appreciated or you’ve built on improvements over the last few decades.

Moving Up and Investment Properties

Finally, it’s important to realize that buying a house is not the end of your real estate story. You don’t have to live in the same house forever and, in fact, there might be a perfect opportunity several years in the future to sell your first home and use the profits to upgrade to an even nicer home. Alternately, if you build up enough money to buy a second house, you can even keep the first one as an investment property, becoming a proud landlord by renting it out to cover any remaining mortgage and pocketing the difference as passive income.

When you choose to leave renting behind and buy your very own home, even if you pay the same amount monthly for your lodgings, the home will be yours to do with as you please. You will be the one building equity, property value, and a future investment rather than watching your rent money provide these benefits to a landlord you may or may not know. For more information about finding the right new home opportunity and making good real estate financial decisions for your budget and household, please click here to contact us today, or give us a call at (877) 706-5856. Here at One Trust Home Loans, we’re here to help first time home buyers make that important transition from renters to proud homeowners.

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