5 Common Mistakes When Deciding to Buy vs. Rent
To rent, or to buy; that is the burning question for many North Carolina residents. If your current lease is coming to an end, or you’re moving to a new area, you may find yourself asking the same question.
At Dash Home Loans, there’s no doubt that we love to help our clients build wealth through real estate; however, we know that may not be the best option for YOU. See what our home loan team members have to say about renting vs. buying, and be cognizant of these five common mistakes.
1. Assuming your rent will stay the same
One thing renters often do when considering a home purchase is compare their current rent to the potential mortgage payment of a home they could buy. What they often forget is that rents almost always increase over time, while a mortgage’s principle and interest stay the same.
2. Forgetting to calculate principle pay down
A second thing renters can forget to calculate is that a portion of their payment goes towards paying down the principle balance on their loan. On the flip side, each mortgage payment brings you one step closer to owning that home, while you also get to build equity that you can potentially tap into by selling or applying for a home equity line of credit.
3. Forgetting to calculate appreciation
That house you own may also appreciate in value. Every dollar in value that your home goes up in value is an extra dollar of net worth on your balance sheet. Appreciation on a home, typically your largest asset, can be the single biggest wealth building tool available to most people.
4. Calculating upfront costs
When determining whether to buy or rent it is also very important to analyze how much money it is going to cost you out of pocket. What down payment options are available to me? What are closing costs going to be? These are questions you should ask your loan contact to get a feeling for your upfront investment. Then you can compare this cost with how long you plan on staying in the house. It may take several years to recoup your upfront costs with appreciation or principle pay down. So, if you plan on keeping the house for a short period of time, it may not be in your best financial interest to buy.
5. Calculating cost to sell
To piggyback on number four, there is also a cost to sell. This is very important to remember because a typical agent compensation on a sale is around 6%. If you don’t stay in the home long enough to build substantial equity, a quick sale may end up losing you money.