Determining whether you should rent or buy your home depends on many different factors. While of course, it does make sense to purchase a home because of the many advantages it can provide, such as the power of building wealth, tax advantages and creating generational wealth for your family. However, there are times where it may make sense to rent instead of purchasing a home.
Short versus long term
When it comes to renting versus buying, the time you plan to live in your home plays a key factor. You have to ask yourself, “Do I see myself here for the next couple of years?” If the answer is yes, it may be a good idea to purchase your next home. Let’s say for instance if your current rental payment is $1,000 per month and you expect to live there for the next 5 years, you are expected to pay a total of $60,000 in rental payments!
On the other hand, let’s say for instance if you purchased a home with a mortgage payment of the same amount, these funds can be used to build equity in your home. Now of course, there are many other options to consider when purchasing or renting. However, this gives you an idea of what happens when you rent for a long period of time.
Know the full costs
Keep in mind, purchasing a home comes with many additional costs, unlike renting. Not only are you responsible for your standard mortgage payment (principal and interest payment), but you are also responsible for other costs as well. These costs may include the following:
- Insurance (property and flood)
- Property taxes
- Private mortgage insurance (PMI)
- Other costs
In most cases, your mortgage payment will include your insurance and property taxes. These amounts are retained in an escrow account, which is a special account where funds are set aside to pay for these expenses. In addition, if your loan amount is equal to 80% or more of the home’s value, some mortgage companies may require private mortgage insurance (PMI), which is an additional monthly cost. Don’t forget as a homeowner, you are also responsible for maintenance and repairs. Therefore before considering any home, you should get an get an idea of whether you can truly afford owning a home versus renting.
Your financial picture
You should also consider your current financial picture when determining whether you should purchase or rent. When considering purchasing a home, It is a good idea to have funds set aside in your savings account, have the ability to manage or eliminate other debts and ensure you have a good credit score. This is a great time to obtain a free copy of your credit report on annualcreditreport.com.
Keep in mind, there are many homebuying programs that offer down payment assistance to help you on your journey. In the New Orleans’ area, consider the Finance Authority of New Orleans which provides funds to potential homeowners. Also, do not forget to seek out foreclosed properties or bank reos, this way you will be able to save more.
Remember: your choice, your future!
Kemberley Washington is a certified public accountant, endowed professor at Dillard University and author of The Ten Commandments to a Financial Healing and other great books! Connect with her on Twitter, Facebook, or LinkedIN.