The age-old question: is it better to rent or buy a home in Michigan? There are plenty of pros and cons to each choice and whether you choose to rent or buy your home depends on your financial situation, lifestyle and personal goals. Both options provide you with a place to live and both require a regular income to make payments- either a mortgage or paying a monthly rent. From residential neighborhoods to apartment complexes, each option helps you thrive in a community space and connect with your neighbors.
Undecided on if you would rather buy or rent? Read on to explore your options and determine the best path for you.
Homeownership Pros
Homeownership brings intangible benefits, such as a pride of ownership and a sense of stability, and tangible tax deductions and equity. Nearly 70% of Michigan residents own a home- one of the highest rates in the country. The last few years have been difficult to get involved in the market. However, with the steady increase of housing prices in the long-term, the sooner you become a homeowner, the sooner you can take advantage of this trend.
With owning a home, you can take solace in stable mortgage payments. With a mortgage, your monthly payments are set for as long as you keep your loan. This is different from a rental lease, where you could see your rent rise each year, along with other payments (deposits, re-signing fees, etc.).
As the market value of your home appreciates over time, you usually benefit from it with equity. You pay your lender every month and the cash comes back to you in the form of equity. This will help you ultimately with your credit scores and your collateral. In addition to equity, there are several tax breaks that can save you money. If you rented a condo or an apartment in the past, you would know how all your money went to a landlord and how none of it came back as a tax deduction or a tax credit. As a new homeowner, that changes and you can get back thousands in deductibles.
With the ownership of your own home, you can enjoy the freedoms that come with it. You can customize your home however you want and make any large decisions without a landlord. Want new hardwood floors? Go ahead! Want to keep up with the latest design trends? Have at it!
Homeownership Cons
There are some cons with owning a home. Paying for maintenance is a big one. Refrigerator broken? Water leak? With a new home comes new responsibilities- including home maintenance. Depending on where you live, a homeowners association or condo association could require you to pay thousands of dollars a year in fees. Some HOAs may even go as far as to impose meticulous guidelines and restrict the freedom that you wanted by owning a home.
On the monetary side, there is a risk of decreasing value on your home. We can’t see the future. What’s the trajectory of your city? What’s the economic strength of your city? Predicting the future, especially that of a specific region, is out of your control. A downward trend may negatively affect the equity in your home and there is never a guarantee that your home will increase in value.
Down payments are also the biggest first hurdle for many new homeowners. As the buy-in for your home, it can go as little as 3 percent but can rise to over 20 percent. Before you can apply for a loan, you must come up with the funds for a down payment. Finally, be prepared to pay several thousand dollars a year in property taxes. Your municipality imposes your property tax based on your home’s assessed value and if you disagree with the amount, you can always appeal the amount.
Renting Pros
Renting offers flexibility, easy-to-predict monthly expenses and someone to handle repairs and other maintenance costs. According to Realtor.com’s recent study, the monthly cost of rent has increased by more than 10% for the eight month in a row in the United States. However, according to Zumper, the cost of living in Michigan is slightly lower than the national average and rent prices follow that trend.
A major plus to renting a home, rather than buying, is that it is easy to move. New job and life taking you in a new direction? Move without worry when your lease is up. You don’t have to worry about selling a house or finding someone to sublease when you want to move. Major repairs and maintenance are taken care of by staff. You don’t have to worry about it- that’s the landlord’s problem.
Housing can be a finicky gamble. If you rent, there is little to no risk as you aren’t on the mortgage boat. You don’t have to worry about depreciating assets or the lack of property taxes. However, your landlord might pass the cost of taxes onto you by implementing it into your rent. If you don’t like it, you can thankfully move on by moving out.
Renting Cons
Your payments go straight to your landlord’s pockets instead of your own, which give you no equity or tax benefits. When you rent out a property, you get no property tax deduction or any break on capital gains when you move. If you want these extra gains, then you may want to invest in a house.
Another risk is the unpredictable rent payments. You won’t know until the time arrives and you could be stuck with higher rental payments if global real estate prices increase. You also cannot modify your property and only change your property to what your lease and subsequently, your landlord, allows.
The Takeaway
Your choice to rent or buy your home depends on your financial situation, lifestyle and personal goals. Ignore people who tell you that owning always makes more sense in the long run or that renting is throwing away money. Disregard anyone who says that buying makes more sense or that your monthly rent payment is more efficient. Housing markets are too unpredictable and life circumstances are too varied to make blanket statements.
Our mortgage professionals at John Adams Mortgage Co can help you assess your budget, and even help you get pre-approved for a mortgage loan. They also have a buying vs. renting calculator, where you can input your expected new home purchase price and your down payment and compare it with what you estimate your rent would be. It then calculates which will be best, and about how long it takes for buying to make the most sense.
Before you do anything, weigh the risks involved and talk to our real estate experts to find your dream home.
