It’s every American’s dream to become a homeowner. In some situations, however, it might be financially prudent to rent an apartment instead. So, in this article, we’ll evaluate the costs associated with buying a home and renting to help you decide which option is more suited for your financial situation.
Costs Associated with Buying a Home
Buying a house is one of the biggest financial decisions you can make. Other than the cost of the property, there are some ongoing (and other upfront) costs you need to take into consideration when making that decision.
Some of these costs include:
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Down Payments
The down payment is the initial deposit you make for the property. It’s usually between 3 and 20% of the full price of the house.
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Closing Costs
When you take out a mortgage to buy a house, closing costs are the fees you pay to finalize the home loan and get access to the property. They are usually within 2 to 6% of the loan amount.
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Mortgage Payments
This is the amount you pay monthly to repay your home loan. Factors like interest rate, loan term, and the purchase price of the house influence the monthly repayment.
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Moving Costs
Moving costs are unavoidable, regardless of whether you hire professionals or do it yourself. It’s especially more when you move over long distances.
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Home Insurance
Some mortgage lenders will ask you to take out a homeowners insurance policy, which would entail paying a recurring insurance premium.
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HOA Fees
When you buy a home in a community with a homeowners’ association (HOA), you’ll likely have to pay a monthly fee to the association for services like security, pool, and maintenance.
Pros and Cons of Buying a Home
Pros
- No landlord restrictions
- Equity building over time
- A good long-term investment
- Stable housing costs (with fixed-rate mortgage)
- Homeowners may be eligible for tax benefits
Cons
- Out-of-pocket maintenance costs
- Upfront costs can be a lot
- Relocation is usually a more difficult choice
- No control over HOA dues
Cost of Renting an Apartment
An alternative to buying a home is renting an apartment. While this may not be a favorable choice for many people, it may be the most affordable and convenient option.
Now let’s discuss the costs associated with renting an apartment to see if it’s a better option for you.
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Application Fee
The application fee is a non-refundable fee that you pay to process your application for an apartment and run a background/credit check.
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Security Deposit
When your application is approved, you’ll be asked to pay a security fee — usually a month’s rent —- to secure the space for yourself. If you leave the apartment in optimal condition, you can get your security money back.
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First and Last Month’s Rent
Some property owners or landlords may demand the first and last month’s rent to cover them in case you default.
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Pets and Parking Fees
In some cases, you may have to pay extra to accommodate your pet(s). Also, depending on the apartment building, you may have to pay for a parking spot.
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Renters Insurance
Renters insurance covers your property in a rented apartment against unexpected circumstances like fire or theft.
Pros and Cons of Renting
Pros
- More flexibility and freedom
- Lower upfront costs
- Lower maintenance responsibilities
- Insurance costs are usually lower than homeowners insurance
Cons
- No tax benefits
- No equity building
- Landlords may increase rent
FAQs
Are there any Assistance Programs to Help Buy a House?
Yes. Several public and private programs offer grants to low- to moderate-income households to help them become homeowners.
Can I Get Help Paying My Rent?
Yes, you can get long-term rental assistance from government programs like the HOME Investments Partnerships Program and the Housing Choice Voucher Program if you’re eligible.