The rent versus buy question has no simple answer. It is a mix of personal choice, personal financial situation, and the housing market at the time the decision is being made. Here are some things to think about when you are deciding to rent or to buy.
Rentals properties do review credit. Some properties have a required credit score to get the property. If the potential renter does not meet this credit score, there is an opportunity at times where a co-signer can be used.
To buy a home with a mortgage, credit is one of the largest factors, along with income and assets. The better your credit, the better the rate and payment will be on the mortgage. You will want to review your credit and get advice from a mortgage or credit professional to see what it will take to improve the score.
Rental Cost vs Mortgage Cost:
The amount a renter pays to a landlord usually increases with lease renewals. The landlord has the right to request this increase. The renter will either accept these increases or be forced to move.
Mortgage payments are fixed for the term. Taxes and insurance can fluctuate, but the payment itself stays the same.
Rental Deposit vs Purchase Down Payment:
Rental deposits can be 1.5 times the monthly rent (in Michigan, this is the max allowed). If you are renting a home for $1200, you will need an additional $1800, for a total of $3000 to move in.
Down payment for a $100,000 house can be as low as 3%, with payments averaging $473 (based on todays rates of 3.925). You also need to factor in taxes and insurance, which should still be under the $1200 of the rent payment.
- There are also many programs available for down payment assistance, which could also help.
As a renter, the landlord owns the home and should handle the maintenance. Some rental contracts may say that the renter repairs things up for value of $50, but overall, the major repairs and maintenance of the home falls onto the landlord.
As a homeowner, you are responsible for ALL maintenance. If you need help fixing something, you will need to call professionals, or buy some pizza and beer and bring over some handy friends and family.
Mortgage Payment and Equity:
When you rent a home, you are basically paying the landlords mortgage payment, taxes, insurance, and profit. You are building up their equity in the home with each payment.
When you buy a home, each payment you make is for YOUR MORTGAGE payment. The equity that is being built up is yours. This equity can be used if needed or received when the home is sold.
Flexibility vs Stability:
For renters, the ability to move at the end of the lease is easy. You find a new place and go from one place to another. It is easy to be able to exchange where you live if you follow the rules in the lease. Some renters do not plan to stay in any place long term.
For homeowners, the purchase is more about stability, more than flexibility. They are looking for a place for long term. When a homeowner wants to move, there is usually more to do than finding the next place to go. You must prepare the home for sale, place the home for sale, close the sale and then move on. Situations will vary, but as a homeowner, you do not plan on doing this as often as you would if a renter.
Renters typically do not have the creative control to make changes to the place they are renting. The lease will stipulate any changes must be approved by the landlord and returned to original condition before moving out. This means there are additional costs for the renter.
Homeowners have complete control of what they do with the place they own. They can paint the walls, design the place inside and out how they want (some areas are controlled by homeowners’ associations), and make the place the home they have wanted.
When the housing market is a sellers’ market, and pricing is higher than normal, people may choose to rent and wait until the pricing adjusts to make it more desirable to purchase.
When the housing market is a buyers’ market, people may look to purchase while the pricing is lower, to make the building of equity easier.
Both renting and buying have their advantages and disadvantages. Therefore, I say it is a mix of personal choice, personal financial situation, and the housing market. Each play a pivotal role in the decision-making process.
If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan, please e-mail us at email@example.com or call 248-294-7850.
Scott Fader and Gary Brincat
Mitten Realty Group, LLC
Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success, and failures to help buyers, sellers, Realtors, brokers, and anyone else in the real estate and business, so that together we can grow as a community.