Millions of consumers who either previously owned a home or have never owned a home are all too familiar with the financial drain of renting. Here are four renting realities that could make you reconsider whether it's ultimately worth it.
1. Your Home Is Controlled By Your Landlord
A legal right to occupy the property does not include making changes to the property. Most rental agreements are such that you cannot simply make arbitrary improvements to the property without first consulting with and acquiring approval from the landlord. Want to change the locks? Want to repair the patio door? You're going to need landlord approval before you can take an action, otherwise it could be in violation of your rental agreement, prompting a warning from your landlord — or worse, an eviction. The reality of renting, unlike homeownership, is you'll always be tied to your landlord for changes or improvements to the property, including minor repairs, assuming the landlord wants to make those improvements or changes. Owning a home provides you much more freedom.
2. Your Rent Payment Is Like an Adjustable-Rate Mortgage
The attractiveness of a fixed-rate mortgage is that it remains constant over time, doesn't rise, doesn't drop, just remains fixed, allowing a homebuyer to plan their budget — i.e., their income and expenses around something that is measurable for the long haul. Renting on the other hand is not fixed, and remains subject to change. Even if you have a lease, it is still fixed for the term of the lease only. Expect your rent to rise over time as most landlords take advantage of market conditions. Much like an adjustable-rate mortgage that adjusts on an annualized basis, the rent payment can change yearly, or even more than once per year, depending on the terms of your rental agreement. If you have a month-to-month rental agreement, the landlord can change the rent at any time.
3. Rising Rents Mean Less Stability
The unemployment rate is 5.8% and the economy, in terms of job growth, is looking optimistic. Job growth coupled with low unemployment drives the housing market. As long as this trend continues, expect rents in many markets to rise — if they haven't already — and remain at those higher levels well into the future. With rising rents also comes increased competition from other people seeking tenancy. The higher the rent prices, the more lucrative it is for landlords to set and procure higher rents, shutting out affordability for people who cannot afford a higher housing payment obligation with their household incomes. This dynamic can easily force a family to stay put and be subject to the constraints and/or the conditions set forth by their current rental agreement. Alternatively, buying a home offers future stability in your housing situation.
4. Your Rent Payment Builds Equity – for Your Landlord
Landlords think like this: I have more discretion over my expenses if someone else is paying my mortgage payment. Paying down your mortgage every month helps you build home equity and increase your net worth. Making a mortgage payment on an amortized loan is similar to a bank savings account where you deposit money on a monthly basis with the return. As you make timely payments of principal and interest over time, your mortgage balance decreases, and the difference between what you owe on your home and what your home is worth is a wealth creator you don't have when renting. Instead, your landlord is the happy recipient of this benefit. Moreover, as a renter you don't receive the mortgage interest deduction or any deduction for property taxes, meaning you are taxed on a larger percentage of your income than you would be as a homeowner.
If you think you cannot qualify to buy a house, try again. There are many available first-time buyer loan programs available with as little as 3% down. Did you previously own a home and have credit challenges? Many lenders now also offer available second-chance options geared toward helping previous homeowners to successfully repurchase. Whatever your circumstances, if you are grounded in your occupation and know you want to settle down, you owe it to yourself to see what you could do to qualify or what action steps you would need to take to position yourself to qualify in the future. Pull your free annual credit reports, as well as your credit scores (which you can also get for free on Credit.com) so you know where you stand, and check this calculator to see how much home you can afford. And be sure to talk to a mortgage lender and explore the possibilities while homeownership is still affordable in many markets and interest rates are incredibly low from a historical perspective.
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