Back HomeBuy or rent a home: Which is better?
Are you stuck between buying or renting a home? Don’t worry, you’re not alone. Buying a house in Texas is a major financial undertaking but so is renting. Moreover, it’s not just a question of whether you can afford to buy a home. It needs to fit your lifestyle, too. Here are several pointers you should keep in mind so you can reach the best decision.
Buying a home
There are two types of costs you need to take note of before buying a house in Texas: upfront costs and long-term homeownership costs.
Upfront costs
Upfront costs are basically all of the expenses related to the act of buying a home. This includes the mortgage, your down payment, inspection and appraisal fees, professional fees, moving costs, and closing costs. The mortgage makes up a significant chunk of the upfront costs. You’ll need to make a down payment of 20% of the home purchase price if you want to avoid paying for private mortgage insurance (PMI). But with a bigger down payment, you’ll be able to save more money in the long run. Closing costs, which include PMI fees, service charges, escrow payments, and government fees, are another thing to consider. They’re typically 2% to 5% of a home’s purchase price, adding a sizable sum to your total upfront bill.
Long-term homeownership costs
Home-ownership costs are everything associated with owning a home. It includes the monthly amortization or mortgage payments, home maintenance costs, property taxes, and insurance costs. If the house is part of a homeowners’ association (a condo association, if you’re thinking of purchasing a condo), you’ll need to pay association fees as well. Your monthly homeownership costs will most likely be dominated by mortgage payments. That said, you’ll be able to pay off your mortgage over time. The real long-term expenses will be your monthly utility costs, taxes, and insurance. Maintenance and repairs will be something you’ll need to prepare for as well. It’s smart to set aside 1% to 3% of the home’s purchase price each year to cover these costs. It’s even smarter to keep tabs on the overall condition of the home and make repairs as soon as possible. Small fixes, when ignored, might worsen over time and become a major expense. You’ll need to pay close attention to the roof, plumbing, the electrical system, and the heating and air-conditioning.
Renting a home
Renting a home, especially if it suits your current personal circumstances and finances, is sometimes the best option. It could be that you can’t afford to purchase a home just yet. Perhaps you want flexibility. Maybe you see yourself moving somewhere else in a few years’ time. Aside from your long-term goals, there are two other factors to consider before renting a home: the price-to-rent ratio and your current lifestyle and needs.
The price-to-rent ratio
One way to determine if it financially makes sense for you to rent is to check the price-to-rent ratio. This allows you to take a better look at the cost of renting vs. the cost of buying in your ideal neighborhood. To get the price-to-rent ratio, find the median home price in the area and divide it by the median annual rent in the same area. You can get the figures you’ll need by checking this page by the National Association of Realtors. A price-to-rent ratio of 15 or less indicates that it would be a good financial decision to buy, provided that you’re financially capable to do so. A price-to-rent ratio above 15, however, indicates that the housing market may be overpriced, so it may be smarter to rent instead.
Your lifestyle and needs for the foreseeable future
In addition to the price-to-rent ratio, you should also take note of your personal circumstances. What do you need right now and for the next few years? Would renting or buying a home suit your lifestyle better? More importantly, are you mentally and emotionally ready to buy a home? Job stability, the possibility of relocating, and the freedom to personalize your home as you wish are equally important as the financial considerations. It’s wise to weigh these out with the numbers before committing to anything.
Whether you’re renting or buying, we’re here for you
Berkshire Hathaway HomeServices (BHHS) Caliber Realty is the team that can help you with your property search in Brazos County, TX. We can help you navigate your real estate journey whether you’re buying or renting a home in Texas. Call 979.694.8844 or send us an email at sales(at)bhhscaliber(dotted)com to learn more about your real estate opportunities in Brazos County, Texas.
