Misconceptions On Buying Versus Renting

While there are a number of misconceptions surrounding whether it is best to rent or buy, one of the biggest may be the notion that renting is simpler.

For example, when the refrigerator in a rental needs repair, the responsibility falls on the landlord. When new homeowners sign their name on the dotted line, responsibility is theirs. Yet stating that renting is the "simpler" choice takes a narrow view of the total set of questions and issues that go into the buy-versus-rent decision.

Here are a few of the misconceptions on the topic of buying versus renting:

Misconception No. 1

The tax benefits derived from purchasing a home takes forever to offset all the other costs involved.

The Reality

Most people know that tax write-offs of mortgage interest are among the biggest financial benefits of home ownership. But some people question whether this benefit is really great enough to offset the "big picture" cost of ownership - including the hefty down payment and closing costs needed to get a former renter across the threshold to homeownership. Homes typically appreciate in value over time - at the same time the homeowner builds his or her equity in the property through monthly mortgage payments. Though tax offsets begin right away (really starting to "pay off" in that first tax filing season after a home's purchase), the bigger picture benefits tend to come with time.

That's why potential homebuyers should carefully evaluate how long they expect to stay in the home that they are considering purchasing. If they anticipate staying in their first home only one to two years - especially in today's market - they're not as likely to get a good return on their initial investment. If, on the other hand, they are planning on staying several years in the same property, the scales of benefit start to shift - and the value of all that they gain financially from homeownership is likely to outweigh those initial costs to get in the door.

Misconception No. 2

Renting a a home isn't all that different from owning.

The Reality

More so than apartment dwellers, the lives of people who rent a house can often mirror those of actual owners. You'll see many home renters making routine repairs, gardening, shoveling the driveway when it snows or cleaning the gutters after the leaves fall. But there is one fundamental difference. Unlike equity built with each monthly mortgage payment, the rent that person is paying is producing zero future financial benefit. In fact, a renter essentially paid the landlord's mortgage and likely additional utility costs.

Since most homes increase in value over the long term, a home not only provides a place to live but will ultimately provide return on a consumer's original investment. Additionally, when it comes time to apply for other forms of credit, responsible homeowners are more desirable borrowers. Paying a mortgage on time each month shows lenders that a consumer is secure, stable and effectively manages finances. And those home renters who take it upon themselves to help make property updates and repairs? They're building equity - just not their own.

Misconception No. 3

It's better to rent and wait for the market to bottom out.

 The Reality

Despite recent challenges in the U.S. housing market, a home remains a highly sound financial decision for those with documented income and a good credit history. Yet some buyers are still sitting on the sidelines trying to time the market bottom - which is always ill-advised. By the time most folks recognize the true bottom, prices are already on their way up. Buying a home should always be approached as a good long-term investment, providing equity accumulation, cost appreciation and tax benefits over time. Homeownership is a lifestyle decision, a highly personal decision. Yet today's current market, while different from market-to-market, is generally typified by falling or stable home prices, still-low interest rates, and a large number of homes on the market. Historically, low or falling interest rates allow more to enter homeownership which in turn helps trigger rising housing prices - resulting in the start of a "sellers market." As the number of consumers are "priced out", home inventory begins to increase and the cycle goes towards a balanced or even a "buyers" market. Prices will generally stabilize allowing economic conditions for those "priced out" to improve and the cycle begins again. The reason why many point out that now is a smart time to buy is because of the historically low interest rates we are seeing coupled with the buyer's market which exists in most communities. The most important thing to remember is that housing is not a quick-in, quick-out investment. When purchased with the longer term in mind, housing is one of the historically safest investments consumers can make.

Misconception No. 4

It's Cheaper to Rent

Reality: This may or may not be so. Because of the current state of the housing market here in Redding and across the nation, many are foregoing homeownership and turning to rentals. This influx of renters may be having an impact on the supply and demand of rentals and driving rents higher. 

Misconception No. 5

By buying a home, I'll become a victim of the foreclosure mess (this is a common misconception these days and for good reason do to the soft economy).

The Reality

While foreclosures have presented very serious concerns for those people affected across the country, it's important to remember that they account for just a small percentage of all homes sold. In the midst of all the negative news headlines, it's easy to forget that mortgage money is still available for qualified borrowers. To help prevent foreclosures in the future, lenders have returned to upholding higher standards. These may require you to demonstrate strong basic borrowing "fundamentals" such as proof of income, solid credit, ability to make a down payment, etc.

Finally, as you begin your home search, it's critical to be well-educated in terms of the various mortgage options available. Be realistic about what you can afford, and remember, if something sounds too good to be true, it probably is. Conservative planning for today (and tomorrow) is the first step toward securing a mortgage that best fits your budget.

Let us know how we can help. If you're ready to consider buying a home, talk to us and let's discuss your  current circumstances - this may be the smartest time for you to buy!

Chris & Maria Jeantet, Representing First Time Home Buyers in Redding, CA and surrounding communities.

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