Should You Rent Or Buy A Home

louisiana-thibodaux-Couple-looking-for-house

For many years families rented apartments or small houses while they saved enough money to afford to buy a home.  Many families are still doings this while other families now choose to continue renting.

Whether you decide to purchase or to rent your home is a personal decision.

At one time owning a home was considered a good investment as the value of the home steadily increased.  With recent events in the housing industry we know that your home may not increase in its value.  In fact, it may even lose value.

When you purchase a home in addition to the down payment and closing costs consider the ongoing expenses above your monthly mortgage payment  If you go with a fixed rate mortgage the payment amount will not change so you will know how much you need to budget for in each month year after year.  Additionally, you will need to budget funds to cover taxes, home owners insurance, maintenance and repairs and if applicable condo association fees.  Of course, you will receive a tax deduction for mortgage interest and possibly for some of the condo fees.  As your mortgage is paid down the amount of interest you are paying decreases and so will your tax deduction.  With home ownership you can do pretty much whatever you want in the home without answering to any landlord.  You are also responsible for handling any problems that arise.

couple-looking-at-new-home_vrl1uz

With home ownership your money is being used to purchase something and someday the mortgage payments will end and you will own your home.  Or you can sell your home and hopefully gain some money on your investment.  If you are planning to remain in your home for a good period of time buying may be for you.

To help decide which is the better deal for you financially you may want to consider the P/R rating.  This is not difficult to determine.  Take the sale price of a home or condo in your area and the monthly rent for a similar unit.  Then divide the sale price of one place by the annual rent of the second place.  This figure will give you the P/R rating.  This is a good figure to help you determine if a home is fairly priced for the area.

If your P/R ratio is above 20 it indicates the cost of owning exceeds the cost of renting.  The higher the P/R rating the more it makes sense to rent rather than to buy.

If you are going to purchase a home it is probably best for you if the price of the home you are considering purchasing does not exceed more than 2.5 times your annual salary.

For example, if your annual salary is $80,000 than your home should not exceed $200,000.  Purchasing a home you really cannot afford is a recipe for disaster.

If you decide to rent your home there will still be a few things to consider.  In addition to the monthly rent  you will probably be required to provide a security deposit and you should purchase renters insurance.

With a rental unit your rent will usually increase each year.  You will probably not be able to make any changes to your unit and you will have the very close proximity of your neighbors.  Your money is not purchasing anything outright.

On the upside you are not responsible for any upgrades or maintenance.  If there is problem you simply contact the landlord so he can make the repairs.  If you decide to move somewhere else you do not have the concern of selling your property as you will if you own your home.

rrrWhether  you decide to rent or to buy is your own personal decision.  You will need to determine which is the best choice for you and your family.