Buy vs. Rent? It Depends…
There are reasons to rent and reasons to buy. Your KSP realtor can offer additional insight and help to navigate through the processes of both. Pre-planning makes a world of difference and you can contact us when you’re ready. Even if you just need to know the best time to start the process.
Home Ownership Is Better
Healthier and Safer
Improved Health and Happiness
Research studies consistently report that homeowners on average have noticeably better health and overall happiness when compared to renters with the same income and education levels.
Better for Children
The stable environment of owning a home positively impacts the reading and math skills for children ages 3 to 12. Home ownership also encourages parents and their families to participate more in school and neighborhood activities.
More Involved in Community
Homeowners are more involved locally with schools, neighbors, politics and civic activities when compared to renters, regardless of home value.
Safer from Crime
Communities with higher rates of home ownership consistently see less property and personal crimes when compared to communities of the same socioeconomic statistics.
Financial Benefits of Home Ownership
Staying put in an area for two years or more gives time for property purchase to appreciate in value. There are costs that are associated with ownership. Paying down a mortgage is like investing in your own living. Appreciation (cost of living increases/ inflation as well as market growth) combined with remaining mortgage payoffs combine to bring a greater return on the use of your money.
Commitment to paying a mortgage and home maintenance is a must. If you are going to pay rent close to the same price as a mortgage, taxes and insurance then it may be better to own.
Owning your own property allows for the greatest diversity in lifestyle preferences. Pets, plants, parking, home design, fencing, closeness to neighbors, the amount of land available for your use is much broader when it comes to ownership.
Tax advantages are available for ownership as well as protections. Homestead exemption status is a perfect example.
Home ownership develops a since of pride and community. You are more likely to get involved with community affairs and volunteerism to support and improve the community around you.
It is important to note, if you are not in the position to obtain a loan, there are mortgage companies that will help explain the best process to clean up credit issues and develop a plan to get you on track. Start early on this process, it takes time for credit to adjust. Improving your credit helps you in many areas of life, not just for mortgage purposes.
Building Wealth Through Ownership
This is unmistakable evidence that home-ownership is a critical building block of household wealth. Owning a home is a key reason why the median net worth of a homeowner is almost $200,000 while the median net worth of a renting household is just over $5,000.
Sure, part of that is because owners were able bring money to put down on a house, and to qualify for a mortgage. But the act of paying for a mortgage actually helps produce more wealth, by freezing payment amounts and building equity through forced savings.
A 30-year amortized, fixed-rate mortgage is a beautiful thing. It provides an affordable path to buying a home while locking in today’s cost of that home for the life of the loan.
In 2016, that head-to-head heavily favored buying, thanks to very low mortgage rates and lower prices. Back then, more than three-quarters of the counties in the country saw lower buying costs than renting costs.
But those raw numbers hide the fact that unlike a rent check, a percentage of every monthly mortgage payment—after the lender is paid interest—goes toward the owner’s home equity. It’s really a forced savings plan.
Here’s how that works out for a median-price home of $250,000 bought in January with 20% down with a monthly payment of $976. . (Actually, 20% down isn’t always typical or necessary) There are 3% and 3.5% down payment loans currently available.
Before their first payment, the proud new homeowners has equity thanks to their down payment. In the first year, an average of 29% of the monthly payments builds equity. After 12 payments, the homeowners have just over $3,400 in added equity. By year 14, 50% of the monthly $976 payment goes toward equity. Don’t forget that the monthly payment hasn’t changed, because the interest rate was fixed. At the end of the 14th year, just shy of $64,000 has been added to the initial $50,000 in equity.
In the final year of the 30-year mortgage, while the monthly payment remains $976, 98% of the monthly payments builds equity until that magic day when the home is owned free and clear.
Researchers at Harvard put it this way: “While studies simulating the financial returns to owning and renting find that renting is often more likely to be beneficial, in practice renters rarely accumulate any wealth. In no small part this seems traceable to the difficulties households face in trying to save absent either a clear goal or an automatic savings mechanism.”
So, you want a better rent versus buy illustration? First, find a place to rent for no more than $976—the same as our mortgage payment example above. If you can rent for less, great. Will you be able to save that difference amounting to at least $3,400 in the first year? That would imply you can really pay only about $700 in rent to get the same savings effect.
Even if the house only keeps pace with inflation over 30 years, which is a very conservative assumption, the forced savings inherent in a mortgage guarantees a homeowner is building wealth. A renter household has to be extremely diligent to amass the same savings that the good ol’ 30-year mortgage does automatically.