When it is time to find a new place to live, an important decision to consider is whether you should rent or buy your next home. While there are advantages and drawbacks to both, it’s best to weigh the pros and cons of renting and buying to see which will benefit you financially while keeping your lifestyle and future plans in mind. If you are simply looking at the differences in cost over time, this calculator will help.
Buying a home is the American dream, so of course, it sounds appealing. Paying your own mortgage instead of someone else’s and having the opportunity to decorate or renovate to make a place the way you like it are just a few of the benefits. It also brings about a greater sense of belonging. Buying a home is a long-term commitment where you and your family will become part of a neighborhood and put down roots in a community. If buying a home is your goal, it’s important to also consider the costs of property taxes, insurance and everyday maintenance and repairs the home requires. If you choose to invest in a rental property, you must also consider the cost of time for finding and managing tenants. In addition, it’s important to know what the upfront costs will be when buying:
You found the right house and you’re ready to make an offer. During this process, you will sign a contract and pay earnest money to show that you are serious about buying the property. The amount of earnest money is usually between $500-$5000 and it goes toward the purchase price if the deal goes through. If the deal doesn’t go through, you usually get your money back, depending on the terms of the contract. Earnest money is held in escrow, usually by a title company or another third party.
Putting a down payment on a home is the most expensive upfront cost. To get a lower mortgage rate, it’s best to put down 20 percent of the purchase price of the home. For example, if you are trying to buy a home for $200,000 your down payment should be $40,000. It is possible to pay a down payment of 10 percent or 15 percent, however, your interest rate will be higher as will the balance of your loan, which means your monthly payments will be higher as well. Your interest rate also depends on your credit, the type of mortgage you are applying for and the condition of the housing market.
Home appraisals usually cost between $300-$500 and are required by the lender before the lender approves the loan. An appraisal is done to ensure the lender that the price value of the home matches its actual value in the current housing market. In other words, the bank will not approve the loan if the loan to value is high.
Getting your potential home inspected by a trained professional is definitely recommended for all buyers, especially inexperienced ones. During a simple walk-through, a home inspector can uncover issues with the home that may not be apparent to you when you are touring through. The inspector will check the electrical, plumbing and roof and let you know if there are any fixes needed. The cost of a home inspection also costs $300-$500, but it could save you thousands in a bad purchase decision or provide information for your purchase negotiation.
Property taxes for a home must be paid in full every 6 months or it can be estimated and paid monthly. While this is a reoccurring cost for homeowners, it can be an upfront cost for a buyer depending on when property taxes were paid last by the seller. If the seller paid property taxes from January to June and you buy the house in March, you will be responsible for compensating the seller for the months you own the home.
Proof of homeowner’s insurance is required by lenders before they approve the loan for a home. The first year’s premium is usually paid upfront and the cost is dependent on the value of the property, location and contents of the home. Homeowners insurance typically covers damage from fire, flood, natural disasters and theft.
Perhaps you’re not ready to settle down and buy a home and you like the idea of being able to relocate easily. Or maybe you find it easier to rent and not have to worry about possible maintenance and repair costs. With less strict credit requirements and cheaper upfront costs, renting may be the best option for you.
Most landlords require a security deposit upon signing a lease to rent. The security deposit is usually refundable and costs about 1 month’s rent. This deposit is used to protect the landlord’s costs if a lease is broken or damage has been done to the house.
First month’s rent
Upon signing a lease, the landlord will usually ask for the first month’s rent upfront. You need to factor that into the equation and check the lease to see if it will cover the last month you live in the apartment or if it is something you can get back at the end of your agreement.
If you have a cat or dog, expect to pay an additional fee for your pet to live with you. While some landlords completely ban pets from their property, others charge pet rent ranging from $100-$500 depending on the property and type of animal.
While renter’s insurance isn’t necessarily required when renting, it is a good idea. For as little as $15 dollars a month, it covers your possessions under theft, fire and other tragedies that could occur and will not be covered by the property owners insurance..
At Landmark Title Assurance Agency we work with many realtors and builders helping buyers purchasing homes. We also work with commercial real estate investors purchasing rental properties and apartment buildings. Handling the title and escrow services on these real estate transactions, we know it is valuable to understand the advantages and disadvantages of buying vs. renting, as you make your individual housing decisions.
If you have any questions about title and escrow services or would like to know more about Landmark Title visit www.ltaz.com