What are the biggest reasons why renters eventually choose to buy?
Many people rent rather than purchase a home because of their financial circumstances. Maybe they’ve got a lot of debt on their plate that they’re working through to pay off, such as student loans, while their incomes are not high enough to put some money aside every month to save up for a down payment.
Or maybe renters believe they’ll have more flexibility to move without being tied down to a house that they’d first need to sell before moving.
When it comes to whether to rent or buy, consider these factors.
Consistent Monthly Payments
Buying a home means consistent monthly mortgage payments. This makes things much easier to budget appropriately. When you rent, you’re at the mercy of your landlord to increase your rent every year.
And while there are rules that landlords must follow when it comes to increasing rent prices, they’re still legally allowed to increase your rent every so often. And it makes sense why they do, as the cost of living continues to rise year after year.
And in order for the landlord to remain profitable, they must increase their rent prices. Unfortunately, that’s bad news for renters who will have to deal with these rent increases.
The truth is, rents have been rising aggressively for decades. For example, in 1990, the median asking rent was around $400. Fast forward 30 years to 2020, where the median asking rent soared to $1,200. And rents continue to rise.
Instead, homebuyers can lock in a set monthly payment for 15 to 30 years. That means that while renters are faced with incremental increases in rent every year, your monthly mortgage payments will remain the same. Unless you make any changes to your mortgage, you can lock in your mortgage payment without having to worry about it going up over the term of your home loan.
Imagine a homebuyer who locks in a mortgage in 1990 with $500 monthly mortgage payments. Now imagine a renter entering into a lease in the same year for $400. Over the course of 30 years, the renter will be faced with regular increases in rent and would now be paying $1,200+ in rent. Meanwhile, the person who chose to buy a home instead is still enjoying much lower mortgage payments of $500.
By owning, you can shield yourself against these price increases year after year.
Build Your Wealth
Not only can homeowners benefit from lower payments every month, but they can also build substantial wealth over time.
It’s a fact that renters have significantly lower net worth than homeowners. All the money they spend in rent every month goes towards their landlord’s mortgage, not their own.
When you buy a home, your monthly payments build equity and, by extension, your net worth. Every mortgage payment you make helps to build your home equity.
If you ever sell your home in the future, you’ll be able to reap major financial rewards. And if you keep your home over the years, you can use your home equity to borrow against it in case a large expense ever comes your way.
Average Household Net Worth
Check out the average household net worth among renters versus homeowners:
That’s a significant difference, especially when considering that monthly payments can be similar, if not lower, for homeowners compared to renters. Over the years, those who own instead of rent can build up significant equity and wealth that they can use themselves or to pass on to the next generation.
Owning a home gives you more flexibility. As a homeowner, there’s no one to answer to when it comes to any changes or updates you want to make to your home. If you want to change your garage door, you typically have the freedom to do so. Homeowners can make design changes and upgrades as they please, since they own the property.
But a renter would have to get the OK from their landlord to make any such changes. Unfortunately, renters have limited options to customize their space.
In fact, flexibility is one of the more common reasons why people choose to own instead of rent. More specifically, 63% of people list flexibility to do what they want with their space as a reason to own.
Sammamish Mortgage has been in business since 1992, and during that time we’ve proudly helped buyers find homes in the Pacific Northwest with a number of mortgage programs. We serve buyers in the states of WA, ID, OR, and CO, and so we have a detailed knowledge of these markets and the various rates which can apply. If you’d like to learn more, contact us today with all your questions!
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