Skolnick's Scoop / As market improves, is it better to buy or rent?
Updated 4:24 pm, Saturday, February 16, 2013
The market is ripe for buyers right now. Interest rates continue to be at an all-time low. So, naturally, you should be telling your landlord goodbye and saying hello to your dream home, right?
Not so fast.
Certainly, owning your own home has its benefits. But, is the dream of homeownership really one you should pursue? It all depends on your circumstance and needs.
Buying a home is such a large investment, possibly the largest purchase you'll make. So, careful deliberation should be made when deciding which is better for you: rent or buy.
The advantage of being a renter is that your monthly costs are fixed. There's little to no responsibility for maintenance of the property. And, it's easier to pick up and move to another location. However, the disadvantages are that your rent typically increases each year and there is no guarantee that your lease will be renewed. In addition, you don't earn any equity nor reap the tax advantages of owning.
As a homeowner, you have the benefit of security and stability, as well as the freedom to decorate and remodel. Your property also builds equity, and you can take advantage of many of the tax benefits. However, when the central heating unit breaks or the roof needs replacing, the repairs are your financial responsibility.
A great tool you can use in your analysis is a Rent -vs.- Buy calculator that you can find on many real estate web sites. These calculators allow you to compare the costs of renting vs. buying. In some cases the amount you spend in rent may be about the same or even more than you would pay on a mortgage. Moreover, the tax benefit from owning a home may provide significant savings.
You also need to decide if you can really afford homeownership. If you are on a tight budget it may not be wise to have the added pressure of maintenance costs, property taxes, and insurance.
If your credit rating is in need of repair, or you have a high debt-to-earnings ratio, now may not be the time to purchase a home. Although you may find a lender, your loan may be at a much higher interest rate using a sub-prime lender. You might be better off taking another year to build your credit score and decrease your debt.
Besides costs, another factor to consider is how long you plan to live in the home. When you purchase a home, there is a substantial initial investment including the down payment, closing costs, and possible renovations.
It typically takes about five years to recover your initial costs. And, depending on your loan payments, it may take a few years before you begin to see a return on your investment. With housing prices promising to remain steady -- and possibly rise -- homeownership is once again a great investment.
Your lifestyle also makes a difference in whether you should rent or buy.
Will you be able to afford the type of property you want and continue to enjoy the lifestyle you have? Are you starting or changing careers or in a job that requires you to move frequently? Or, are you planning to put down roots and stay in the community for awhile?
Homeownership has its benefits, but make sure it's the right fit for you depending on your financial and personal situation.
Linda Skolnick's "Skolnick's Scoop" appears every other Friday. She is a Realtor with Coldwell Banker Riverside in Westport and can be reached by calling 203-246-0088 or by through her website, www.GoAskLinda.com.