HousingChapter 9Renting Versus Buying

Learning Objective: Students will compare and contrast the advantages and disadvantages of renting versus buying housing.

FCS Standard: Housing and Interior Design Standard 2

Some Renting Vocabulary

Renting: Paying money to live in a dwelling that is owned by someone else.

Landlord: The person who owns the dwelling. Tenant: The person who is renting the

dwelling. One can rent anything from a small efficiency

apartment to a single-family house. The dwelling can be either furnished or

unfurnished.

Advantages of Renting

Predictable Housing Costs Usually nothing is unexpected.

Limited Maintenance Yard work, snow removal, painting, household

repairs are usually the responsibility of the landlord. (Single-family dwellings may differ.)

Mobility Renters don’t have to commit for a long period of

time. There is flexibility to move due to work, income level, etc.

Disadvantages of Renting

Limited Control and Freedom Don’t have much say over décor, such as paint.

Restrictions over number of tenants, children, or pets, etc.

Lack of Permanence Don’t feel a sense of community.

Financial Disadvantages Money spent is not applied toward ownership. No

tax savings. Rent may increase after the period of the rental agreement. Renter must pay it or move.

Some Buying Information

Most common type of purchase is a freestanding, single-family house set on its own lot.

Units in multi-family dwellings can be purchased.

Advantages of Home Ownership Feeling of Belonging

Homeowners develop a sense of stability, community, and are more likely to participate in local government.

Independence Can renovate or redecorate as you would like or

need. This can also add value. Investment Value

Money put into maintenance is not lost. Cash value is traded for real estate. A homeowner can usually sell the house for more than it was purchased.

Other Advantages of Owning a Home Good Credit Record

Making regular monthly loan payments helps one build good credit.

Tax Advantages Interest is tax deductible. It can be deducted from

the income amount used to figure taxes. Property tax payments are also deductible.

Disadvantages of Buying a Home Unexpected Expenses

Maintenance is the homeowner’s responsibility. Insurance may pay for part of the expense if due to an accident. It depends what happens!

Limited Mobility The cost of buying or selling a home can be

expensive. Buying should be considered a long-term investment.

Renter’s Initial Costs

Application Fee: A fee when filling out an application. Helps ensure the renter is serious about taking the unit.

Credit Check Fee: The landlord may charge this to the renter. It’s the process of finding out if a renter pays bills on time or has any large outstanding debt.

Security Deposit: Covers the cost of any future damage the renter might cause to the unit. May be equal to 1-2 months rent. Pet owners may have to pay a pet deposit. Is usually

returned when the renter leaves if the unit is in good condition.

Further Renter’s Initial Costs

Advance on Rent: One or more month’s rent that is paid in advance before moving in. The landlord considers it a type of “insurance” if

the renter moves out unexpectedly. Moving and Other Costs

Expense depends on if you use a moving company or if you pack and move yourself. There may also be a one-time start up fee for certain services (telephone, electricity, cable, internet)

Renter’s Continual Costs

Monthly Rent: Depends on space, age of building, neighborhood, services provided.

Renter’s Insurance: A policy that covers their personal property against loss by theft, fire, or other hazards. The landlord’s insurance does not cover the tenant’s

belongings. Utilities: Sometimes it’s included in the rent,

sometimes the tenant pays for some or all. Parking: There may be an additional fee for garage

space, especially in the city where there is little parking space.

Buyer’s Initial Costs

The initial costs of buying are usually much higher than those of renting.

Earnest Money: A deposit that a potential buyer pays to show that he or she is serious about buying a home. If the deal goes through, this money is applied

toward the total price payment. If buyer’s can’t get a loan, it’s refunded.

More Initial Costs for Buyers Application and Credit Check Fees Inspection Fees: Usually done by a professional who

checks the structure, such as electrical or potential problems, such as termites.

Down Payment: A partial payment of cash, at the time of purchase. May be from 5-25% More money put down=Lower monthly payment.

Closing Costs: fees due at the time the purchase is finalized.

Moving and Connecting Utilities Possibly also appliances and home maintenance

tools

Buyer’s Continual Costs

Mortgage: home loan. Usually long term, 15-30 years. Includes two components a. Principal: The original amount of the loan b. Interest: The fee the lending institution charges the buyer

to borrow money. Taxes: based on the value of the home. Called

property or real estate. Often added to the mortgage. Insurance: Should include property and liability

liability: covers claims filed against homeowner by person’s injured on the property

Utilities Maintenance

What Can You Afford?

Analyze Your Finances Income-determine monthly and yearly Expenses-what are fixed and what are flexible. Savings

Strengthening Your Finances Make a budget Set aside savings first, not what’s left over Reduce flexible expenses Reduce current debt Limit impulse buying Continue keeping records