Interest rates on home loans are low. Rents are relatively high. You may be debating whether this is the time to go from renting someone else’s property to owning your own. At La Capitol Federal Credit Union, we’re here to walk you through a few talking points outlining the pros and cons of renting versus owning.
When you rent, you’re signing a lease that typically promises that you will pay a certain amount of money—rent—on the first of each month for the term of the lease. The most common lease term is for one year. Basically, the lease is a contract that states the conditions of the agreement—who is responsible for what and what is and is not allowed during your stay. At the end of a standard lease, you own nothing.
Leases allow you to rent year-to-year. If you want to move at the end of the year because you got a promotion or want to relocate, you can. Likewise, if you want to renew the lease, you often can do that too.
Short-term leases may be available. While the monthly rent is usually higher on a short-term lease, it lets you secure a brief stay without additional penalties.
Leases may include the use of additional community amenities. These include things like pools, tennis courts, workout facilities, community rooms or halls, and other recreational areas.
Property maintenance doesn’t land on you. Landlords are responsible for maintaining the property and repairing breakdowns and normal wear-and-tear issues.
You only need renter’s insurance to cover your possessions. The landlord or management company is responsible for carrying insurance to cover the physical rental property.
Landlords usually require a security deposit equivalent to a month’s rent. They hold this against any damages you may do to the property. Getting it back at lease’s end can sometimes prove difficult and inconvenient—especially if you need it for the security deposit on your next rental.
Pets may not be permitted. If they are, the security deposit may be considerably higher, sometimes calculated per pet. In addition, the lease may restrict the size, type, number and breed of pet allowed.
Breaking a lease can be costly. If you must relocate prior to your lease’s conclusion, the lease may specify penalties as well as acceptable time frames and procedures. Depending on what is in your lease, you may or may not be able to sublet your rental to another renter.
Sharing walls with neighbors may be challenging. In an apartment community, you will be living directly adjacent to other residents, which may bring issues with it, from noise complaints, smoke smells and other complications that you have more control over in your own space.
You don’t have complete control over your space. The freedom to repaint, add new fixtures and change larger elements of your space unfortunately isn’t included in most rental agreements. You can add superficial decorations in some units, but for the most part, what you rent is what you get.
When you own a home, you typically have signed a mortgage contract with a lending institution that covers the purchase price of the property minus any deposits you’ve invested. While the home is “yours,” you agree to repay your lending institution with a monthly mortgage payment that usually includes principal, interest, and escrow for taxes and insurance. When you’ve paid off the mortgage, the property is yours.
Mortgage payments are typically lower than rent payments. Landlords have to be able to pay their own mortgage on the property plus set aside reserve funds for taxes and repairs and still make a profit.
Each mortgage payment’s principal accrues value in your property. Even if you don’t keep the house long enough to completely pay it off, your payments count as equity that you should regain if you sell the property.
You have control over your space. You can personalize, update, upgrade, redecorate or add on to your home to suit your tastes. You don’t need the permission of a landlord. However, residential areas with a homeowners association (HOA) may require prior approval for any changes visible from the outside to protect neighborhood home values.
You can have a pet or other animals. Depending on zoning, homeownership typically allows you to have domesticated animals. However for certain animals, like llamas or goats, for example, you may need a property zoned for agricultural purposes.
You can use it to generate profit through renting. If you want to move but don’t want to sell the property, you can rent it to someone—typically at a monthly amount greater than your mortgage.
You’re responsible for maintaining the property inside and out. In fact, mortgages usually specify that you must maintain and insure the property appropriately. If something breaks or needs to be replaced, it’s your responsibility. This includes large-ticket items like heating and air-conditioning systems, for example, so take that into consideration when looking at potential properties.
You must insure your home as well as the contents in and on the property. Homeowner’s insurance can usually be escrowed as part of your monthly mortgage payment and then paid yearly by your mortgage lender.
Homeownership isn’t for everyone, but if you’re ready for the responsibility and like the idea of an investment, it offers versatility, a sense of security, and the pride of having a place you can call home. If you’re ready to explore the advantages of owning a home, the mortgage specialists at La Capitol Federal Credit Union are happy to make it happen. Take the first step today, and get prequalified so that you can start looking.
NMLS # 411413 and Equal Housing Lender.