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Renting Vs Buying

Wednesday, August 21, 2019   /   by Erin Cambell

Renting Vs Buying

A friend of mine finally called me to get help.  She had been renting for several years and wanted to know what steps she needed to take to buy a home for herself.  She had asked me a few questions over the years, but never really took action. Every year she would complain about how much money she felt she was "throwing away" on rent, but waited until her lease was almost up and then felt pressured to sign another year lease. I was so happy that she trusted me to help her.

The first thing I asked her was how much rent she was paying a month. I knew that there were homes she could purchase and pay the same amount for a mortgage. I told her it would be beneficial for her to make mortgage payments and build equity on a home that she owns rather than pay rent and never see that money again. 

The first couple years you own a home, a lot of your payment goes towards the interest on your loan. After a few years you will start to see that you have built some equity. When you go to file income taxes the next year, you can write off the interest paid on your mortgage. I suggested that she put that money towards making an extra payment on her mortgage. The faster you pay off the interest, the faster you start to build equity.

If she ever wanted to sell her home in the future, she would be able to take the equity after she sold it and do whatever she wanted. This is a way better option than just giving your money to the owners of the apartment, or the home you rent. You literally walk away with nothing, except for maybe the deposit you put down at the beginning of the lease.

She was not planning to move for several years because she had a little girl and she wanted her to stay at the same school.

You may be thinking "But I don't have a 20% down payment". That is what most people think and that is incorrect. Most first time home buyers do not need a large down payment. There are down payment assistance programs as well as other programs that could work in your favor. Make sure you ask a real estate agent you trust for a recommendation for a lender. Real estate agents work with lenders they trust because if they do not, it can cause a deal to fall through, which makes for unhappy clients. 

Purchasing a home may not be the best option for everyone. If you are planning to make a move within 2 years for a job or to travel, this may not be for you. If you purchase a home, and want to sell it within 2 years, you may want to continue to rent because you will not have very much equity built up yet. 

Another option is to live in your home for the first couple years and then rent it out to a tenant. If you need/want to move out of the home, you can be a landlord, or pay a property management company to do the "land lording" for you. It just depends on how "hands on" you want to be and if you will live close to the property. 

My friend ended up buying a house and is paying less for her mortgage payment than she was paying for rent. She has been living happily in her home now for 3 years and has a lot more room for her and her daughter. They have a fenced in backyard with a swing set and a dog. 

If you are curious if renting is a better plan for you or if buying a home would be beneficial for your financial future, here is a great tool. This website lets you put in your personal information and tells you which option is best for you. 

https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator


Erin Cambell

636.229.8598