Probably the biggest financial decision that most people will make in their financial lives. The day you finally decide (or for the first become financial capable of) to stop drifting around from apartment to apartment. No longer are you going to have to deal with leaky roofs, noisy neighbors (at least ones, who living spaces aren’t connected to yours), and shitty landlords. Instead, you are diving headfirst into the joys of home ownership and pulling the trigger on purchasing that 3/2 starter home, and finally making yourself known as a respectable member of society. Or at the very least someone who can cobble the amount of cash needed for a down payment.
Now, before I start listing why renting is financially terrible, and why home ownership is miles better, it is worth noting some of the pains of home ownership. First of all, if anything goes awry at your apartment you can call maintenance (of course in most places this isn’t a guarantee) and have people come over and fix the problem, for free, which is the key here. In home ownership you are responsible for getting all the ducks in a row in order to fix any issues, rightly and as cheap as possible. Also another payment that people don’t really take into account is the property tax payment that will occur. For most places 1% of the houses assessed value is probably a good prediction, which for the average house in America is probably about $2,500 a year. This is mitigated ,of course by sites like Zillow, and hopefully the banker you are getting the mortgage through. Zillow is good, because it can actually come up with an estimate for property taxes, home insurance, HOA fees, and the payment for the actual loan itself per month. This is guaranteed to not be 100% accurate but it should be close. Also not to mention if you’re on a David Ramsey kick, you wouldn’t have a mortgage payment more than a quarter of your take home pay anyways.
“So, extra payments seem like a shit deal to me why should I buy a house?” Well, luckily for you, me and pretty much everyone else on this Earth, we have the internet. Which means we have a wealth of information on what that house will really cost. This will hopefully allow you to empower yourself to make an educated decision on what you can afford. However the real reason buying a home is better than renting is because rental payments are always a 100% loss on investment. And that makes sense because when renting, you’re just paying for a place to live. Also not to mention buying a house is really buying an asset, however buying an asset isn’t a guarantee of a positive return, ask anyone that purchased a home from 2006 – 2008. I think the reason that so many people got in hot water with their mortgages in this time period is due to the fact they assumed that prices would always just go up. I would have to believe we would be more careful given the effects of the Great Recession were seen by most of first hand. Anyways the point is to remember that the market going up isn’t an inevitability and to only buy a house that you can afford.
However even if the market doesn’t rise and another 2008 style recession happens again, you still not garnering that awful -100% return that would occur if you were renting. Instead of having a 5% yearly gain on the value of your home, you’re having to contend with -5% loss on the value of your home for a couple of years. Which, mind you has come back 2 fold in the years that followed The Great Recession. Not to mention that you are no longer subject to rent increases and could even refinance for a better rate, if rates drop even further than they are now. Which in my opinion probably shouldn’t happen but who knows, negative interest rates seem to be all the rage in the financial world at the moment.
In conclusion the main reason that buying a home is better than renting is because renting a place to live from someone else is always a 100% loss on investment. Even with housing prices sliding you will not reach the threshold of a 100% loss on your mortgage payments. However there is something to be said with surprise payments that constitutes one of the “joys” of home ownership. However in my opinion, the key is to get into a house that you can afford, by a comfortable margin. A site like Zillow and input from your bank will help you aggregate the costs before you take out that mortgage. This, will help you make an informed decision that will help you feel somewhat at ease when the neighbor ruins your freshly cut grass hedges or whatever.