In the long run, do you save more money with owning or renting? What are the pros and cons of each? This article compares the costs of ownership and rental to help you figure out which option makes the most sense for your financial situation.
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How did we get into debt?
It can be easy to get into debt when you own a home, but it’s important to have your finances in order before you make any buying decisions. The average American household owes around $130,000 in mortgage and consumer debt—that’s more than $600 per month just on interest alone! It might seem like a good idea to take out a loan for that new kitchen or bathroom renovation, but if you don’t have your spending under control first, things could spiral out of control quickly. Before taking out any loans or signing any contracts, make sure you know exactly how much money is coming in and going out each month so that you can avoid getting into trouble down the road.
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Debt can be good and bad
On one hand, debt is nothing more than future payment for goods or services you’ve already enjoyed today—you’re buying on credit. On the other hand, debt can give you an opportunity to invest in assets that can increase your standard of living and/or net worth. The choice between rent and buy is no different: it all depends on what you want and need in life, as well as how much risk you’re willing to take on for better future returns. For example, if you have plenty of money saved up and are financially responsible, purchasing a home might be your best bet. However, if you don’t have savings but still want to own property, renting might be your only option until things level out.
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Get rid of bad debt first
Pay off high-interest credit cards, personal loans, and other similar obligations with your home-buying funds before making an offer on any property. If you need to use some of your new mortgage funds for debt repayment, be sure to factor that into your budget when figuring out how much house you can afford to buy. You’ll sleep better at night knowing you’re not paying thousands in interest every year—and your home will appreciate faster if it isn’t competing with all those debts for cash.
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When is it time to buy a house?
In some cities, buying a home is more affordable than renting, and in others it’s just not—considering rental rates, sales prices and interest rates in your community are essential to making an informed decision. Ultimately, deciding whether or not to buy is up to you, but if you’re considering it, here are some cost-comparison statistics to help you decide what’s best for your situation. If you live in one of these 10 cities, then owning might be cheaper than renting. However, if you live in one of these 20 places, then renting is definitely a better option financially.
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House VS. Rental
It can be difficult to decide whether renting or buying makes more sense financially and emotionally. To help you make your decision, we’ve highlighted some pros and cons to consider for each option. We hope that by looking at both sides of the coin, you’ll be able to come up with an informed decision about which is best for you. You might also want to check out our guide on how much house you can afford!
There are many factors that go into deciding whether renting or buying is better. You should take into account your current situation, financial status, long-term goals and future plans when making such a large decision. That said, there are several key differences between these two options that could have a major impact on your life. Here’s what you need to know about each: In most areas, it’s cheaper to rent than buy. If you rent an apartment in a metropolitan area with good schools and low crime rates, you can expect to pay around $1,000 per month for a one-bedroom apartment. For that same price, you could purchase a three-bedroom home with two bathrooms and 2,500 square feet of living space. However, when factoring in long-term costs such as maintenance fees or homeowner’s insurance (not to mention property taxes), owning your own home might be more affordable than renting—especially if you plan on staying put for several years. This is especially true if your monthly mortgage payment is less than what you would spend on rent each month.
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What are the costs?
Everyone would love to own their own home, but is it really worth it? While you’re paying for rent, are you really losing out on that money you could have saved and invested in your own house? When does it become more economical to pay off a mortgage than continuing to pay monthly rent checks? How much can (or should) someone spend on a house? What features should one look for in order to ensure that his or her home will stand up over time and prove financially viable after its purchase. And, most importantly, when is it smart to rent instead of buy so as not to get saddled with debt before you’ve even had time to enjoy your new home?
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What kind of mortgage should I get?
There are two main types of mortgage: fixed and adjustable rate. A fixed-rate loan will have an interest rate that remains constant for its entire term, which can be anywhere from 10 to 30 years. An adjustable-rate loan will start with a lower interest rate than a fixed-rate loan, but it can fluctuate over time based on market conditions and other factors. If you’re planning to stay in your home for more than five years, you might want to consider getting a fixed-rate loan; if you plan on moving within five years or less, then you should probably get an adjustable-rate loan.
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Can I afford my mortgage payments?
If you’re considering buying, it’s important to understand your monthly mortgage payments. The calculator at NerdWallet can show you how much home you can afford with any given monthly payment amount and down payment percentage—simply plug in your numbers and then pick from one of their preloaded loan scenarios. It shows estimated mortgage payments as well as an amortization schedule that illustrates how much interest you would pay over each period of time depending on your interest rate (the lower your rate, generally, the less interest you'll pay overall). It also has a graph that illustrates what kind of cash flow curve your loan will follow; whether you end up paying more or less than expected over time depends on whether your payments are higher or lower than average.