When you’re thinking about buying your first home, one of the first things that you have to determine is whether you should actually buy a home right now. Is that the right lifestyle fit for you or should you rent? Can you afford a home? Is now the right time to buy?
Most people are going to tell you that you should buy and that if you rent, you’re throwing away your money. Or you’ll hear someone say if you rent, you’re paying someone else’s mortgage. But in some circumstances, it actually can be more beneficial for you to rent.
Benefits Of Buying a Home Vs. Renting
1. Get Pride in Owning Your Own Home
Owning provides you with the ability to do whatever you desire with your house. You can paint the walls, attach permanent fixtures, plant gardens or renovate the kitchen. The options are endless and completely up to you.
2. Appreciation in Value
Over the years real estate has consistently appreciated making it a stable investment for you.
3. Build your Equity
Owning a home allows you to build equity in addition to the appreciation that you will acquire. Paying a mortgage forces you to save by investing in an asset over time. A first home often leads to a superior second home. It is much easier to upgrade to a second home than to wait and save money while renting to afford a nicer first home.
4. Borrowing Power for Future Investments
You can borrow money against your home, therefore, it increases your buying power. This can be in the form of a loan or line of credit. This borrowed money could then be spent to complete upgrades to the home or to purchase an investment property.
5. Stability
With a fixed mortgage, you are aware of what your monthly payments will be for the entire term of the mortgage. Whereas, as a renter, the rent could increase at any time or the landlord could decide to sell the property.
Benefits of Renting a Home vs Buying
1. Renting is Easy
Compared to owning a home, renting is fairly easy. When you own a home, it is 100% your responsibility to fix/replace any damaged or broken appliances. However, as a renter, you are able to contact the property manager or landlord if anything goes wrong.
In addition, snow removal, lawn maintenance, pool/sauna care, etc. are often the responsibility of the landlord/ property maintenance company. Yet another benefit to renting is that you will (usually) only have one monthly rent payment, instead of several bills and fees as a homeowner.
2. Maximum Flexibility With Your Lifestyle
Renting provides you with flexibility when it comes to relocating. As a renter, you have the ability to pack up and leave immediately at the end of your lease. Whereas, as a homeowner, it could take several months to sell your home. For those who are not committed to a certain city or that like to travel, you can do a month-to-month lease allowing you to move quicker.
3. No Large Up-Front Payments
Renters normally only need to provide the first and last month’s rent upfront while home buyers will have to provide a down payment of at least 5% of the value of the house, pay lawyer fees, property taxes, etc.
4. Amenities in Building
Depending on the rental property, certain amenities may provide social, business, and fitness opportunities for tenants. For example, after school programs for kids, business centres, fitness centres with personal trainers, games rooms, theatre rooms, swimming pools, etc.
5. No Unexpected Expenses
Renters can avoid the unexpected expenses associated with owning a home, such as servicing the furnace, fixing a leaky roof or replacing an appliance.
How to Know Which Option is Right For You?
So when should you rent? Well, if you haven’t quite settled down and you’re not sure if you’re going to be staying in the same location for an extended period, you may want to rent. Also if you can’t afford the monthly carrying costs of homeownership or if you have a lot of high-interest debt, like credit card debt, you may want to pay that off before taking on a mortgage.
However, if you are going to be staying in the same location for around a five-year period, you’ve got a stable job, and you’re ready to take on the responsibilities of a home, that could be one of the best investments that you’ll make. The great thing is when you go to sell that house, the profit from the sale is tax-exempt.
Am I Better To Buy A House Or Invest In Stocks?
We frequently get asked by investors whether it’s better to invest their money in real estate or the stock market. The truth is that it’s an extremely personal decision. It really depends on your goals, risk tolerance & financial situation.
A real estate investment is almost always going to appreciate in the long term making it a relatively low-risk investment. Whereas stocks can fluctuate drastically due to a company’s decisions, geopolitical happenings, and even things like shifts in interest rates.
On the other hand, buying stocks are easier. The initial investment can be quite low & your stock portfolio will never need a new roof or have a pipe burst. Stocks are also quite liquid meaning you can sell them quickly.
You also need to take into consideration leveraging your investments & keeping your portfolio diversified.
Check out our in-depth blog on Buying Real Estate Vs Investing in stocks in 2021.
You Have Decided You Want To Buy A House…But Can You Afford One?
At the end of the day purchasing a home is expensive & you need to ensure you are in the right financial position before making that commitment. They require a large upfront cost, as well as monthly mortgage & maintenance fees. There are two ratios that you can use as a general guideline to determine if you are financially ready to cover the monthly expense of homeownership.
- The first is your Gross Debt Service. The rule is your monthly housing costs (mortgage principal, interest, taxes, heating expenses, condo fees) shouldn’t exceed 32% of your gross household earnings
- The 2nd ratio to consider is your Total Debt Service. For this one, your total debt (including housing, credit card interest, car payments, loans, etc) should not be more than 40% of your gross household earnings.
You will also need to pay a down payment upfront when purchasing a home. If you are a first-time buyer & the home you are purchasing is under $500,000 you should be able to put a down payment down as low as 5%. If the home is over $500,000 you will be able to put down 5% for the first $500,000, then 10% for the remainder up to $999,999.
For Example:
$450,000 purchase price = $22,500 down payment
$650,000 purchase price = $39,975 down payment
Looking for more tools to help get your buying journey started? We have you covered. Learn more here:
The best way to determine if you are eligible to purchase a home is to get a preapproval. A lender will take into consideration your income, spending habits, monthly expenses, credit score/report to determine your creditworthiness. They will then provide you with a document stating you are qualified to borrow a certain amount of money in order to purchase a home. Learn more about the importance of pre-approvals here.
When Is A Good Time To Buy A Home
December/January are typically good months to purchase a home if you are looking for a good deal. Many people either put house shopping on hold during the holiday or don’t want to face the brutally cold weather meaning there will be less competition. Most sellers try to avoid listing their home during the holidays unless they are in a situation where they need to sell meaning they may be willing to accept a lower offer. Although at this time of year you will experience less selection.
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