THE DEBATE: Should You Buy Or Rent A Home?

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Over the past few weeks, Occupy Wall Street has continued with fervor as thousands of demonstrators across the country express their dissatisfaction with the current economic crisis.While our economy’s future is hazy at the moment, one thing is clear: the surest way to aim our country back towards financial recovery is through stabilisation of the housing market.

More Americans than ever seem to be foregoing homeownership and choosing to rent due to fear of foreclosures and short sales, but by encouraging financially responsible Americans to take the homeownership plunge, our country will be able to rise out of economic debt sooner.

The key words here are financially responsible. As we have seen far too often over the past few years, capitalising on homeownership when mortgage payments are unable to be made can result in underwater mortgages and foreclosure, factors that weaken our economy further rather than improve it.

So how should you decide if homeownership or renting is the better way to go? It is an important decision and we are here to help you weigh your options:

Homeownership

While homeownership might initially seem risky given our country’s economic status, available mortgage rates — which are still unbelievably low — should be taken into consideration first. Currently, the 30-year fixed mortgage rate is at 4.25 per cent and is lower than it has been in almost 60 years while the 15-year fixed mortgage rate is at 3.5 per cent and is among the lowest it has ever been in history. Now is a prime time for homebuyers to lock a loan and take advantage of interest rates that could save a significant amount of money over time.

In a recent article from Forbes, author Liz Davidson put these rates to the test in order to compare the financial rewards between those who own a home versus rent (since renting does not allow for fixed interest rates). Davidson referenced August 2011’s Consumer Price Index and by keep up with rent inflation that is considered to be a 3.2 pecent annual increase, she found that if a renter and homeowner occupy similar homes over the next 30 years, the renter will eventually pay almost $900,000 more than the homeowner when all is said and done.

Furthermore, even if the housing market’s growth rate occurs at a low one per cent increase a year, a homeowner who sells their property 30 years from now will end up, on average, with an additional $400,000 in assets compared to the renter, who will not be able to capitalise on home equity at all.

Renting

That being said, homeownership is not for everyone. These are tough times and the last thing we want you to deal with is more financial burden than you might already be experiencing. Before owning a home, make certain that you can choose a mortgage plan that is 25 pecent to 30 per cent of your annual income and develop an emergency fund of at least six months expenses in savings. If these tasks seem unmanageable, then renting is the best route to take for the time being.

Renting should also be considered if you need to have the flexibility of changing locations often, if your existing income is not stable, or if you are presently experiencing credit issues. Additionally, by choosing to rent rather than own a home, the cost of all home repairs will be covered by your landlord and you will not have to pay property taxes.

It is important to note that because so many Americans are currently opting to rent, the increase in rental demand has inevitably led to an increase in rental costs as well. The cost of renting has risen over three per cent in the past year and is expected to continue rising in 2012, according to Stan Humphries, economist for real estate website Zillow. As a result, renters are finding money to be tighter, which in turn makes the prospects of homeownership seem even more fleeting. This will in no way help our country’s economic situation.

Decisions, Decisions…

In short, when it comes to deciding between renting and homeownership, it is important to make a decision that will not only be financially beneficial for you in the short term, but that will also be the most advantageous for our country’s economic well being as we look towards the future.

According to Coldwell Banker CEO Jim Gillespie, the Census Bureau’s 2012 Statistical Abstract shows that 33.4 per cent of US renters are currently paying more than $1,000 a month for their home. The same monthly payment could be used towards ownership of a $204,000 home.

Jim Gillespie states, “Homeownership is a lifestyle investment that is part of the American Dream.” As we think of solutions that provide the greatest renewal of the American dream — something that seems to be quickly slipping through our fingers as of late — it is clear that the prospect of homeownership should, without a doubt, not go unnoticed.

This post originally appeared at 360 Mortgage Group.

Click here to see the pros and cons of renting an apartment in New York>

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