The bulk of most individuals’ money each month goes to keeping a roof over their heads. Whether through renting or buying, we all need a place to hang our hats, so to speak. And while there are an incredible number of factors that go into that decision, there are advantages and disadvantages to both options. If you’ve been renting for a while, or are about to embark out on your own for the first time, you may be wondering if it’s cheaper to buy a home than it is to rent. Luckily for you, the team at GVC Mortgage has broken down the major considerations between buying and renting.
Cost of Entry
When renting, you’ll likely need to put down the first and last month’s rent, fill out an application, and pass a background check. Then you’re all set to move into your new place. When buying a home, there are other costs associated with getting the process started. Depending on the loan type, you’ll likely need a down payment of 3-20% on the loan. You’ll also need to put in 1% of the loan as earnest money. Plus, there are various inspections you’ll want to pay for to protect your investment. While that may seem like a lot at first, you’re effectively paying yourself that money, but more on that later in the article.
Cost over Time
When opting to rent, you sign an agreement for a certain price over a defined amount of time. That amount of time is typically one year. Once that year is up, you have the option to sign for an additional year. However, your landlord also has the option to raise your rent. Your cost of living can increase each year and it’s entirely out of your control. While interest rates on variable rate mortgages can fluctuate, it’s typically not as much as what a rent increase would be. You can also take on a fixed rate mortgage which ensures your payment remains the same month after month and year after year until it’s paid off.
Cost of Necessities
One of the biggest benefits of renting is that any repairs are handled by your landlord. If something breaks, your contract deems the landlord responsible for that bill (unless you’re the one who caused the damage, of course). When you own a home, it’s all on you. If the HVAC system, fridge, or roof gets damaged, it’s your pocket that takes the hit. There are also other things to consider like utility bills, internet, trash removal, HOA fees, and more.
Lastly, and this is a big one, is what you end up with. Earlier we mentioned that when buying a home, you’re paying yourself. Now, of course, you’re literally paying the bank who loaned you the money, but what you’re also doing is building equity. As you continue to pay on your mortgage, you gain more equity in a property that you will eventually own entirely, or sell for (hopefully) quite a large profit. So, while buying a home may be a bit more expensive up front, the monthly costs of renting are comparable with the added benefit of building your financial portfolio.
GVC Mortgage can help answer any questions you have about buying a home. We can walk you through mortgage options, the loan process, and how to buy a home. Simply contact us today at (317) 564-4906 to start the process. We serve Indianapolis and the surrounding areas.