Renting Versus Buying - A New Reality in Today's Economy

Renting Versus Buying - A New Reality in Today’s Economy

Not since the Great Depression has there been a bigger debate then to rent or buy a house. Both options are good options depending on financial situations of those applying for either situation. If someone who’s financial house is not in order do to reasons that are affecting their credit, owning a home may not the best option. After the mortgage collapse in 2007 how one receives a mortgage has changed. While owning a home has many perks renting does as well. With the recent recession renting versus buying a home maybe the best option for a large amount of Americans as society rebounds financially.

According to ( Leonhardt 2010), a simple way to do the comparison is to look at something called the rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. The number 20 provides a useful rule of thumb. With everyone’s different situation these rent ratio calculators are a helpful tool to decide if they are ready for the leap into home ownership of if renting is the best option.

In this economy putting a person’s financial house in order is important before buying a house. According to (Lundin 2010), a relator from Realtor.com, there is 10 mistakes that should be avoided before buying a house. These include:

Do not change jobs before purchasing a home
Do not change banks
Do not buy furniture on credit before qualifying for a mortgage.
Do not buy a car
Do not be late on credit cards
Do not make large deposits into bank accounts
Do not co-sign for anyone
Do not lie on the application
Do not have inquiries made about credit
Do not spend one’s own money for closing costs

There is a lot of careful consideration when considering buying a house. According to (Anderson 2010), there is a checklist of requirements to consider for example; figuring out what to look for in a house, affordability, think about additional costs and then start the house hunting process. Owning a home is a responsibility that not everyone would like to tackle. If owning a home is something someone would like to consider doing homework on the subject is the best defense.

While working on one’s checklist for buying a home consider what the credit score is first. If the credit score is below 720 most banks will not touch a potential buyer. Even if you swear you’ll never get a loan or use a credit card, a bad credit score could affect your life in many ways — for example, your ability to rent an apartment, get a good insurance policy with low premium, get certain jobs, and more (Tenton,2009). Having a good credit score will not only affect a person trying to buy a house but it can impact the kind of job one receives. All Americans are eligible to receive one free credit report a year. To receive one’s credit score that does cost but the amount is only $7.00. Knowing one’s credit score is one of the major components of a checklist when considering buying a home.

After a credit report has been obtained and is free from errors having an adequate down payment based on the cost of the mortgage should be established. With the economy crisis most lenders are requiring at least 20% down on a mortgage. This is so practices of a PMI penalty are no longer needed so obtain a mortgage. This protects the buyers as well as the lenders. Down payments make mortgages more affordable and will not top out the equity of a house value. If a down payment of $30,000 is obtained on a mortgage of $150,000. This knocks down the cost of the mortgage value to house value, a lender is more willing to work with an individual whom has cash to play with.

One of the main arguments about renting versus buying is the tax break scenario that homeowners get. This may not be the case anymore given the state of economy. It does not benefit all Americans, just mainly the rich because they itemize their deductions, it does not help home prices and it encourages buyers to take on more debt (Tseng, 2010). The economy has changed the way mortgages are obtained so for the tax incentive to not pack the same punch as previous makes someone really consider if owning a home has the same advantages as it once use to.

In previous generations owning a home was something a married couple did after they got married. Owning a home had a prestigious continuation to it almost like a status symbol of what one had. With the dwindling economy houses are more of a headache then anything. Owning a home is nice because there is the freedom of being able to have visitor’s come and go as they please. Decorating how the homeowner sees fit is not an issue with a landlord. In the new economy until it turns around to what society is use to it almost seems investing money into gold and international stocks is the best route.

Renting versus buying in this economy is a new reality for some Americans because of different situations. Rebuilding a life after the loss of a job or even a home is a very real reality for some. Fixing a tarnished credit rating is also a new reality for some Americans. While in years past owning a home was for tax breaks and a status symbol most Americans have choose not to do so. Not making mistakes in regards to credit a homebuyer can have a hassle free process when the time comes to buy a home.

Reference

Leonhardt, D. (2010). In Sour Home Market, Buying Often Beats Renting. New York Times. Retrieved from http://www.nytimes.com/2010/04/21/business/economy/21leonhardt.html?_r=2

Anderson, S. (2010). First steps for first-time buyers. MSN . Retrieved from http://realestate.msn.com/article.aspx?cp-documentid=13107707

Lundin, D. (2010). 10 Things You Shouldn't do Before Buying a Home. Retrieved from http://www.realtor.com/home-finance/mortgages/10-things-you-shouldnt-do-...

Tenton, A. (2009). Moolanomy. Moolanomy. Retrieved from http://www.moolanomy.com/2535/how-to-fix-bad-credit-score/

Tseng, N. (2010). 3 reasons why the mortgage tax break isn't a break. CnnMoney. Retrieved from http://finance.fortune.cnn.com/2010/12/03/3-reasons-why-the-mortgage-tax...

(While writing my essay I think I used process analysis because I stated the process of buying a house. Talked about the essential information one needs to obtain a house and I then backed up my topic giving information why one would need to obtain these essential things to get approved for a house.)

(When using cause and effect in an essay you need to state the reasoning. In my essay the effect would be why someone cannot get approved for a house and renting is their best option. The cause would be any reason that their credit has suffered. Bankruptcy, loss of a job, etc.)