Making the transition from renting to owning your home is exciting for everyone. Whether you have owned a home before or are a first time home buyer, there is something gratifying about the move from paying someone else’s mortgage to paying your own, whether or not it is a move you have made before. Want to hang a television? Maybe knock down or modify a wall? No problem … If you are a homeowner. But there are significant considerations that need to be taken into account before making the move from renting to owning.
Buy or Rent? Some Considerations …
At its most basic level, a rent to own home is one in which the tenant/buyer leases the home for an agreed upon amount for a set period of time before being given the option of purchasing the home before or at the expiration of the lease. From there, the potential variables in a rent to own agreement are numerous and significant—it is paramount that anyone considering a rent to own home seek out the counsel of well-versed real estate professionals.
What is renting to owning a home?
For instance, some rent to own home agreements gives you the option to purchase the home at the lease’s conclusion, whereas others could have you obligated into buying a home. The way the ultimate purchase price will be determined can also vary, as will the stipulations regarding who is responsible for home maintenance during the lease. Whether the option money (the money paid by the tenant/potential buyer for the option to buy at the end of the lease) can be used toward the purchase of the home or how much is refundable if a potential buyer opts out of buying a home is another variable to consider.
Is it cheaper to buy or rent a home?
This is a question that comes up frequently. The honest answer is, “It depends.” For example, if something breaks inside a home you own, you are responsible for fixing it rather than calling up the landlord to take care of it like you might have at a rental. However, costly repairs can be planned and accounted for by conducting a thorough inspection prior to purchasing a property. Having a qualified real estate professional by your side will help you negotiate any necessary repairs, purchase a home warranty along with your new house and purchase an insurance policy that you have a full understanding of.
Furthermore, once you have paid month after month of rent, your money is gone as far as you are concerned. Paying a mortgage month after month, on the other hand, results in an investment in your long-term financial health. The resulting equity you have in your home can be a powerful asset.
What is your goal?
If short-term liquidity is your priority, buying a home may not be the best option for you yet. Unless you are able to pay for a house in full (in which case, why wouldn’t you?), you will be responsible for the inevitable maintenance and home repairs that will come up over your residency in addition to your mortgage payments. This will all be on top of the money you will be required to use for a down payment (typically 20 percent) and potentially a monthly mortgage insurance payment (if you opt to put down a lower down payment). However, over the long run, home ownership is one of the most solid investments a person can make.
Is a mortgage cheaper than renting?
Not to beat a dead horse here, but the answer is once again, “It depends.” Traditionally, a mortgage is significantly cheaper than renting. Because of low mortgage interest rates and increasing rent prices, this is true in almost every state. In fact, in all but 8 states, renters across the country are missing out on the savings of home ownership by continuing to rent their homes.
While interest rates have increased slightly recently, they are still on the low side. Looking into next year, they probably will continue to slowly climb … It is pertinent to get in as soon as prudently possible if you are thinking about making the leap to buy or rent to own a home.
The transition from renting to owning a home
As you can tell from all of the information above, there is much to consider when making the transition from renting to owning a home. Perhaps the chief consideration should be timing—whether the timing is right for you and your family, as well as whether or not market timing is good. As we have recently written about, the outlook for Phoenix, AZ real estate is looking great in 2017.
The real question is, are you ready?
If you are still on the fence about renting or owning a home in 2017, give us a call. We would love to chat with you more about your specific situation and goals to give you the information you need to confidently make the best possible decision about renting or owning.