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Should You Rent or Buy?

Renting or buying? These two options represent the primary paths available to a home. Of course, there are outliers such as living rent-free with friends, family, or colleagues. For most, it’s a binary choice – pay rent or pay a mortgage. Each option carries its own set of financial implications, tax advantages, and long-term wealth considerations. You may be surprised to learn that the decision to rent or buy is situational and relies heavily on your personal circumstances.

Curiously, many renters are unaware that they may actually qualify to buy a home. Often, through force of habit (a financial comfort zone), renters remain renters and buyers remain buyers. With a little guidance, it’s possible to cross lanes and move from a renter to a buyer, or vice versa. Again, it depends on your personal situation as we are about to find out!

What’s in it for Homebuyers?

As a homeowner, you get the full package – warts and all. Homeownership can be a fantastic long-term investment. Provided you consistently pay the mortgage and maintain the property, it can serve as a wellspring of support for present and future goals. As a homebuyer, the biggest advantage you have is equity in your investment. Unlike renting, what you put in gradually builds your financial portfolio. For many Americans, homeownership is the realization of a dream. It is a long-term endeavor that builds stability one year at a time.

Often, down payments are required for homeownership or mortgage approval. While this is generally true, a particular class of homeowners is not required to make a down payment. If you are a veteran with a certificate of eligibility in hand, you may apply for a VA home loan.

Since these home loans are offered through private lenders, partially backed by the federal government (Department of Veterans Affairs), there is more leeway for lenders to write loans for veterans. In this particular case, a streamlined application and approval process exists, even in the absence of a down payment requirement.

Millions of veterans own homes in the United States, but most homeowners are ordinary civilians from different walks of life. Currently, US homeownership levels are hovering around 65%, but the number of veteran homeowners is around 78%. This indicates how successful the VA home loan system is for eligible members of the armed forces.

As a homebuyer, you are responsible for everything pertaining to your property. Since you are the landlord, it’s all on you. But that also means that the benefits of homeownership are yours to enjoy, subject to zoning rules, the city council, HOA, etc.

What’s in it for Renters?

Rental contracts typically last a year. You may be able to negotiate longer rentals with your landlord or management company. As a renter, the maintenance of the property is not your responsibility. Plus, renters are expected to abide by the rules and regulations and to maintain the integrity of the property. Minimal effort is required in this regard, with the changing of AC filters and lightbulbs as examples of expected maintenance work.

Other than that, renters are required to pay their own utility bills (Internet, water, electricity), and inform the landlord or management company when any important issues arise. The fundamental difference between renting and owning is this: renters have zero stake in the property. At the end of the month, that rent check is just a receipt for a roof over your head; it’s not a deposit into your future wealth.

Many of us have been renters before, or are possibly renting right now. Renters often think about the fact that they’re paying all this money every month with zero equity in the property. In a way, it is wasted money. Consider that mortgage payments can be less costly than rental payments.

This begs the question: If you’re already paying that amount of money for a rental, why not simply buy your own property? The answer is nuanced. Not everyone wants to live long-term in their rental property. You may be the type of renter who is on a fixed-term job contract, or you may be visiting with friends or family, assisting a relative with long-term care, or any other number of reasons.

For the most part, renters rent because they simply can’t afford to buy. There are many obstacles in the way of homeownership for people with mediocre credit scores, low or no savings, and insufficient monthly income. Financial management experts recommend that you pay no more than 35% of your gross income towards your accommodation. Unfortunately, a large minority of people pay substantially more than that towards their accommodation expenses.