If you're on the fence about whether to rent or buy a home in today's market, this may help you decide. Not only have home prices gone up in recent years, but rental prices have also seen a significant increase. This has led many people to wonder if buying a home is still a better financial decision than renting one.
Homeownership builds equity over time.
One of the biggest advantages of buying a home is that you will build equity over time and own more of your home with each mortgage payment. This can be a great way to save for retirement or your child's education.
Homeownership provides more stability than renting.
Another pro of buying a home is that you will have more stability than renting. Your monthly payments will stay the same for the duration of your mortgage, while rent can go up over time. This can give you peace of mind and make budgeting easier.
A fixed-rate mortgage locks in your monthly payments when you buy a house. And that's especially important in today's inflationary economy. Inflation occurs when the prices of items like gas, groceries, and other things go up. By locking in your housing payment (likely your biggest monthly cost), you'll have more stability in the long term and be less affected by rising expenses later on. Renting an apartment provides different stability than owning a house.
Homeownership is more affordable than renting two bedrooms.
The cost of homeownership is often cheaper than renting a two-bedroom apartment, even when accounting for the cost of a mortgage. This is because you will likely have a lower interest rate on your mortgage than you would for rent, and you may also be able to deduct your mortgage interest from your taxes.
"The median rent across the 50 largest US metropolitan areas reached $1,876 in June, a new record level for Realtor.com data for the 16th consecutive month." According to a recent article from realtor.com.
The graph illustrates that, as home prices increase, buying a two or more-bedroom home may become more affordable. This also gives us an idea that owning a home may be more affordable than renting for that unit size based on nationwide averages.
Here are some statistics about renting a home in California:
- Renting a home or apartment in California has increased by 8.4% from last year.
- The average rent for an urban apartment is now $2,973. In some areas of the state, the average monthly rent can be as high as $4,500.
- With rental prices rising, many people wonder if it's still cheaper to rent or buy a home in California.
Factors to consider when making your decision
Of course, there are always factors to consider when making any significant decision. Here are a few things to keep in mind when deciding whether to buy or rent a home:
Your down payment
The size of your down payment will affect how much house you can afford. We know that some people think they need to produce a large amount of downpayment to buy a house. However, you may be surprised to learn that you can buy a home with as little as 3% down. With the help of a downpayment assistance program, you can buy a home with little to no money out of your pocket.
Your credit score
Your credit score will also affect how much house you can afford. If you have a high credit score, you can qualify for a lower interest rate on your mortgage, which saves you thousands of dollars over the life of your loan.
Does credit score matter when buying a new home?
The short answer is yes. A credit score does matter when buying a new home. However, other factors come into play as well. Lenders will also look at your employment history and income to determine how much they're willing to lend you.
You may have a harder time qualifying for a loan if you're self-employed. This is because lenders want a consistent income stream to qualify you for a loan. If you're self-employed, you may want to consider getting pre-qualified for a loan before shopping for a new home.
Your job security
If you have a stable job with a good income, you may be able to afford a more expensive home and may qualify for a lower interest rate.
The current housing market
The current housing market can also affect your decision to buy or rent a home. When interest rates are rising, home buyers often become wary, but rates are only one consideration. And although rates are higher than in the recent past, rates are still among average levels over the last 30 years. If the buying elements are right for you, it could still make sense to buy, even as rates are rising. Consider what the next few years could look like for you and if staying in the area is a real possibility then taking a big picture approach is suggested.
The Bottom Line:
Whether you buy or rent a home is a personal decision. Consider your financial situation and long-term goals to make the best choice. If you are undecided and worried about making a big downpayment, remember that many downpayment assistance programs provide flexible payment terms.
If you're looking for more information about whether buying or renting is right for you, don't hesitate to get in touch with a real estate professional. Jesse Dougherty is a real estate professional based in the South Bay.