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Jermaine MedleyWritten by:
Jermaine Medley
Lafayette Federal Credit Union
Vice President, Mortgage Originations


Making that crucial decision to buy versus rent a home is one that is personal to you and your situation. Each option has pros and cons to consider before moving forward. Determining what’s best for you should be based on your own circumstances, and should take into consideration the following information. 

Below I will outline important information when making the decision as to which option is best for you.

Important Factors to Help Your Decision

Deciding if renting or buying is the right option for you isn’t necessarily a simple choice. It’s a choice that usually involves investing some time, research, and consideration of your goals.

In addition to your personal values, you’ll also need to closely consider your financial situation and your long-term financial goals. When it comes to deciding whether you should buy versus rent, it’s all about what you want, need, and the priorities of each. Consider the following factors to help you decide which option is the best for you:

  • Responsibility
  • Financial obligations
  • Flexibility
  • Financial investment
  • Tax benefits

Responsibility

Renting or owning a home comes with a certain amount of responsibility. If something goes wrong in a rental, you can reach out to your landlord or property manager to fix it. You’re usually not responsible for ongoing maintenance or improvements to the property. 

For example, if your hot water goes out or you get an ant infestation, a responsible landlord will send a handyman or pest control service to come to your aid. The owner of the rental will be responsible for paying for the service — and you won’t have to lift a finger.

But if you’re a homeowner, you’ll have to take care of these types of issues yourself. It’s your responsibility to take care of all repairs, maintenance, and improvements - either by doing them yourself or hiring a professional. When something breaks, it’s up to you to figure out how to fix it or call someone to fix it for you. 

If possible, become knowledgeable about how to best service the various aspects of your home, especially in areas you can save money and do it yourself, since the state and condition of the home are entirely on you. 

Financial Obligations

The financial obligations between renting and owning a home are different as well. When you rent a home, you typically pay a security deposit and the first month’s rent each time you move, then a set monthly payment for the duration of your lease. Often, your rental rate is only locked in place until the end of your lease term. So when it renews, your housing costs can increase. 

However, the upside is that you won’t be responsible for repairs and maintenance to the property, property taxes, or property insurance (although you’ll likely want to have a renter’s insurance policy in place to protect your belongings).

Alternatively, a homeowner typically needs to significantly save for a down payment and closing costs, in addition to paying a monthly mortgage payment. But there are other financial obligations to owning a home that many people forget to consider. You’ll also need to pay for homeowner’s insurance, annual property taxes, and potentially homeowner association (HOA) dues. All of these costs may increase each year. Additionally, homeowners have to pay for all repairs and upkeep, so you should have a decent emergency fund in case something goes wrong.

Flexibility

When you rent, you're only obligated to stay in the property through the terms of your lease. When your lease ends, you can choose to renew your lease or not. You have the flexibility to easily pick up and move where you want each time your lease ends. 

When you own a home, you don’t have the same flexibility. If you want to move, you have to decide what to do with your home. Are you going to rent it out? Are you going to sell it? Unless you can afford to do so, you generally can’t just move and leave your property behind. Moving requires a bit more planning and forethought because of the financial responsibility that comes with owning a home.

Financial Investment

When you rent, you’re essentially paying for a place to live. You’re not building up the value and equity in your home that you would if you owned it outright. 

Over time, the equity in your home is likely to increase. If you sell your home, you have access to that equity. You can also take out a home equity loan or line of creditOpens in New Window (HELOC) on your home, allowing you to tap into home equity and use that money for various purposes. There are many ways you can use a HELOC. By owning a home, you give yourself this built-in savings that you can access with a HELOC, by refinancing your mortgage, or by selling your home. That provides you with an option for more financial security that can’t be achieved through renting. 

Tax Benefits

When you’re a homeowner, you can benefit from a wide range of tax deductions, including: 

  • Mortgage interest: You can deduct the interest you pay on your mortgage each year. 
  • Home equity loan interest: If you take out a HELOC, you can deduct the interest you pay on the HELOC and any home equity lines of credit. 
  • Property taxes: You can deduct the amount you pay for your property taxes up to a certain limit. 
  • Home improvements: Some home improvements which are considered necessary can be deducted. 
  • Mortgage insurance: If your loan has private mortgage insurance (PMI), you can deduct the mortgage insurance payments on an itemized return. 
  • Capital gains: If you make more money than you originally invested in your home, you can enjoy a capital gains tax break. 

There are numerous ways to enjoy tax benefits over the lifetime of owning your home. These tax benefits can help reduce your taxable income and put more money back into your pocket. 

However, the potential tax benefits should be weighed against the other expenses of owning a home. Purchasing a home simply to enjoy tax benefits may not result in a cost-effective decision due to the other financial obligations of owning a home.

Pros and Cons of Renting Versus Buying

Pros of Renting

Here are some advantages of renting over buying a home:

  • You have the freedom to move without restriction whenever your lease ends
  • You enjoy fairly stable and predictable monthly housing expenses
  • The landlord takes care of maintenance expenses and planning
  • No closing costs required 
  • You have the flexibility to try out different living spaces

Cons of Renting

There are some disadvantages to renting as well, including:

  • Your rent can increase when your lease ends
  • The landlord can decide to sell their property at any time
  • The landlord can decide to end your lease
  • You don’t build equity in the property
  • Home customization restrictions and rules 

Pros of Buying

Homeownership is often thought of as the ultimate American dream, and it does come with benefits. Advantages of owning a home include:

  • You can build equity over time 
  • The home value will likely increase over time
  • You’ll enjoy tax benefits associated with homeownership
  • You may experience a greater sense of stability 
  • You have the freedom to customize your home inside and out

Cons of Buying 

There are significant costs associated with homeownership that must be accounted for before making a decision, including:

  • You’re responsible for maintenance and repairs
  • Greater difficulty to move
  • Home values don’t always increase — sometimes they decrease depending on the housing market
  • You’re responsible for taxes and property insurance 
  • Down payment and closing costs can be expensive

Remember, this is a choice that only you can make, and there’s no right or wrong answer. Indeed, your answer today may be different from your answer a year or five years from now. 

How to Purchase a Home

Buying a home is a multi-step processOpens in New Window. You’ll likely need to build up your savings, gather a team of professionals (including a real estate agent and lender), and spend ample time researching different homes before deciding to make an offer.

Choosing a Lender

Buying a home is a multi-step processOpens in New Window. You’ll likely need to build up your savings, gather a team of professionals (including a real estate agent and lender), and spend ample time researching different homes before deciding to make an offer.

Choosing a Lender

One key part of the home buying process is choosing a lender. A lender provides you with financing for your mortgage, and it is advisable to talk to a few different ones about their mortgage offerings to ensure you’re getting the best rates and service.

When comparing mortgage loan offers, you’ll want to pay close attention to a few specific terms and conditions, including:

  • Interest rates
  • Fees
  • Repayment terms

Interest Rates

The interest rate is what you (the borrower) pay on the money you’re borrowing. Lenders may offer different interest rates, sometimes dependent on your financial situation and credit history, so it’s important to shop around. 

There are different types of interest rate structures offered with mortgage loans. The two most common ones are fixed-rate mortgages and adjustable-rate mortgages. 

  • Fixed-rate mortgage: The interest rate is constant and does not change throughout the duration of the loan.
  • Adjustable-rate mortgage: The interest rate can change during your loan term after a specified period of time. 

Fees

Some standard fees on a mortgage loan may include:

  • Origination fee: Upfront fee for processing your loan that you pay the lender
  • Late-payment fee: The fee that you’re subject to if you make a late payment on your mortgage
  • Prepayment penalty: A fee you’re charged if you pay off your loan early (not applicable on all mortgage loans)

Repayment Terms 

Mortgages are typically offered in 15-30 year termsOpens in New Window. With a 30-year loan term, you’ll enjoy smaller payments, but over a longer period of time, you’ll pay more in interest than you would with a shorter loan term. 

In summary, make sure you understand all rates, terms, and fees associated with your mortgage loan, so that you’re fully prepared financially.

Lafayette Federal Is Your Trusted Homebuying Partner

Simplify your journey by partnering with Lafayette Federal for your mortgage lending needs.

At Lafayette Federal Credit Union, we offer competitive benefits, including our Peace of Mind Purchase Lock (rates locked up to 120 days at pre-approval) and a 30-day close guarantee. If closing takes longer than 30 days, we offer a $250 closing cost credit (up to $2,000) for each day beyond 30 days. Additionally, Lafayette Federal offers nationwide financing, competitive rates, up to 100% financing options, loans up to $3,000,000, and money-saving rate discounts.

Not a Lafayette Federal member yet? You can become a member by completing an online membership applicationOpens in New Window.

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