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If you ask a real estate professional, “should I rent or buy?” the answer is likely to be “it depends.” It depends on your financial circumstances, how long you intend to stay in your home and your personal preferences. Above all, you need to be well informed about the pros and cons of renting vs. buying and then balance these against your personal situation before you decide.
Renting means greater mobility. If you need to move every few years, it’s easier to end your lease than to sell your home. Unless you have the time to maintain your home, renting is a better option. Finally, there are no guarantees that the current trend of rising home prices will continue.
On the downside, your landlord can raise your rent when you renew your lease. According to a Harvard study, 50 percent of all renters (compared to 38 percent in 2000) now spend 30 percent or more of their income on rent. Also, renters don’t benefit from the mortgage tax deduction that home owners enjoy.
Owning your home means you can build equity. Home prices are rising, with the average home price up by 6.4 percent this year, and you increase your equity with each mortgage payment. Also, as a home owner, you get a mortgage interest tax deduction. Finally, owning your home means you don’t need to get permission to change your home’s exterior or interior.
On the other hand, owning a home means additional costs for maintenance, property taxes and homeowners’ insurance. It also means that if anything goes wrong, it’s your responsibility to fix it. In most cases, it also means a substantial down payment and, of course, you’ll need a credit score high enough to qualify for a mortgage.
Owning a home can also cost a lot more if you have trouble with your credit score. If you rent, your credit score doesn’t effect what you pay each month, but if you buy a home, a lower credit score means a higher interest rate, which can cost you tens of thousands in interest. If you are worried about your credit score before applying for a mortgage, clean up mistakes on your credit report either by yourself (via the credit bureaus) or have one of the many credit repair companies negotiate on your behalf.
Given these pros and cons, here are the five questions you need to ask before you decide if renting or buying is the better fit for you:
To make the difficult decision of whether to rent or buy, you need to consider all the factors, as well as your individual needs. Above all, be sure to work with a qualified real estate agent who knows the facts and can take the time to help you carefully weigh these before you sign on the dotted line.