Home ownership has more advantages than leasing a home. Ownership became the “American Dream” because it gave people an opportunity to own a piece of property / community and provide the potential to build a financial “nest egg” with their equity. When interest rates began to climb, people looked to leasing as an alternate option than buying. Now that interest rates have dropped, many people consider buying, as their mortgage payments can be less than a lease payment. With many factors to consider: Tax credit from interest / property taxes paid, the expense of maintenance, current interest rates, credit score, area property values, and even how long you plan to remain in the area are all issues to be considered. While a Realtor can help answer some of your questions regarding the purchase, in the end, it is advisable, to consult a tax professional to determine truly your best option.
Home Buying vs Leasing
by Tammy Murphy | Jun 12, 2010 | Neighbor Chat | 32 comments
Hi Tammy, you summed up good points regarding buying a home vs. leasing a home. Many individuals should definitely take the advice of a professional when it comes to a major purchase. There are many aspects unknown which can cause future financial burdens if not considered when making a major purchase. Some other concerns would be the realtor and his or her professional demeanor. Some buyers are not familiar with the details of purchasing a home, and some realtors just want to make a sale, therefore a lot of research, planning, and consultation is needed before making a final decision.
I agree with you Nicole. I think that over the past 5-6 years people were given loans a lot of them being with variable rated in which when the economy began to go sour they were forced to foreclose on their homes. When purchasing a home people should go to a professional real estate agent and may be a good idea to even visit more than one. Making sure that you are researching all of your ideas before making a purchase is crucial to making a successful investment in the long run.
Mandy, when buying a home you should visit more than one Professional real estate agent. When I first purchase my home my agent didn’t care anything about my needs or what I was looking for the only thing she was interested in was making a sale by any means necessary. That’s why I feel when the economy flip so many people were losing their homes due the face the research was not done on there mortgage they just wanted to get into a home.
Tammy did a good job explaining the pros and cons of buying a home.
You mentioned the following: ” . . . people were given loans a lot of them being with variable rated in which when the economy began to go sour they were forced to foreclose on their homes.” But did you know that the actual problem that caused the problem was that the Clinton administration forced lending institutions to either loan money to people for homes, whether they could afford it or not, or the government would sue them out of business.
Now that’s just wrong.
Mandy, actually, there were several components that came together in a “perfect storm” type of scenario that created the bulk of problems we have seen in the housing industry. 1) There were not enough restrictions on Mortgage Brokers as a whole, and some – certainly not all, used the system to their own advantage. 2) There were not restrictions in place to “CAP” a variable interest rate to more reasonable terms and the public disclosure was not as transparent. 3) Title companies and other entities that were involved in the transaction were not held accountable for the fees they charged consumers. 4) The consumers were in a “frenzy” to take advantage of “No Money Down” offers and perhaps did not fully realize or understand what the actual cost of the mortgages were that they were now responsible to pay. 5) The housing industry itself is cyclical and always adjusts, so that when values had gone “high” it was only a natural transition for the cycle to correct and home values become lower.
As a Realtor, I would always recommend the consumer talk with multiple lenders to determine who is giving them the best loan, including fees, terms, etc. As well, you should interview Realtors to find one who has the right mind-set, work ethics, and experience that works for you as an individual (even one who worked well for a friend may not be the best one for you.) Now, more than ever, many people realize the “caveat emptor” or “Buyer Beware” term is really telling them to do their homework.
I agree with you that ultimately a tax professional might be the best person to answer this question about home ownership versus leasing. I further believe that some people are not meant to be homeowners. Many people do not have ability to keep up with the up keeping of a property and rather than a good investment it become their money pit.
I agree that the government usually has a lot to do with what happens with our country, but a loan consumer also need to own up to their share of responsibility for agreeing to get a loan that they knew quite well they could not afford. Common sense is usually obscured by the idea of owning something that has been unattainable before. When the mortgage industry created these ridiculous loan terms, there were many, many people, behind them to make it work.
Consumers, appraisers, title insurance companies, real estate professionals and of course bankers, just to name a few, that stood behind these loans. Those professionals that refused to put a consumer into this particular loans, were basically put out of business, because the consumer went around the corner and found someone willing to close their loan. This is where the true professionals stood out from the fraudulent ones. This industry became one of dollar signs and not customer service.
Your point is exactly what I was going for. My brother just recently bought a house in which he went through three different agents because it seemed that there was a miscommunication when trying to make the purchase. The first person it seemed was trying to make them make a fast purchase with rates that they were not comfortable with. My brother seeked help in second opinions in which they were then very pleased because he would have been forced or persuaded into something that they would not have been happy about.
Yes – it is sad when someone who is in a “professional” position does not keep the best interest of the client in mind. I have never been an agent of pressure, because to me, it is more important for the relationship with the client to survive the transaction. I don’t want them to curse me every time they go “home.” I have been very lucky to say that has not happened, and I work very hard to understand in the beginning, what the client is trying to accomplish. Sometimes, just knowing someone in the business that is that way can help… if anyone is looking in an area outside of my location I am always happy to refer an agent to them in their area. We do a lot of networking and I have contacts in most states / areas!
Absolutely Gloria! There are so many other factors to “owning” that someone who comes from a “rental” view may not be aware. Just the maintenance that should be done on a monthly, quarterly and annual basis is enough to keep one very busy! Not to mention just the daily up keep – which in today’s very busy lifestyle can be overwhelming. It is true that sometimes, the tax benefits are outweighed by the shear joy of not having to do all the maintenance things!
Although I am not in real estate I understand what you mean about keeping the best interest of the client in mind. I work in Financial Aid for a private college and some people get what you call “sticker shock”. When I am dealing with my students I make sure that I always do what is in their best interest. I counsel them to best of my ability and give them as much information as I can and I don’t really sugar coat things. I explain it in a very simple manner so that they can have the best understanding of financial aid.
Repairs are a big difference when you go from renting to buying. If you own it and the air conditioner goes out, you have to pay to have it replaced rather than being able to call the landlord and letting him do it. I know that when I bought my first home, that was a very hard pill for me to swallow.
Thank you for understanding the needs of your clients, it makes a huge difference in an experience. Being honest and humble within your position will ultimately drive much success. Your customers will appreciate your assistance; therefore they will refer other individuals to you for business, as well as come back to you in the future for additional services.
I will keep you in mind; I am looking to purchase a home in the near future.
I agree with Nichole. It makes me wonder how many people, each day, are sucked in to something more than they can afford because they lack the necessary information to ask the right questions.
“Knowledge is power.” – Sir Francis Bacon
When it comes to making the decision to purchase or lease a home, I believe that the right knowledge is not only power, it is one’s own personal insurance!
Let us not forget about the people wanting to buy a home that is too much for them. Granted, politics, loan companies, and realtors play a role in the purchasing, but if people were honest with themselves, they know if they could afford to purchase a home or not. When purchasing a home, someone may feel confident in their financial situation. Then an accident comes along, a job is lost, or a disaster occurs and finances change. The change was not thought about while purchasing the home. Therefore, it is my opinion, the home buyer is just as much to blame as everyone else.
Hey there Nichole! Thank YOU for your reply post…sometimes there are many people who really do go above and beyond their work that never receive the “thank you.” Honestly, I do this for far more than a paycheck – and even the thank you I receive can come from non-verbal communication (like when the client smiles when they walk into their home for the first time!) If more people looked at their “job” as something more there would be a better, more positive energy in the world.
Absolutely – keep me in mind, even if just questions you might have. Let me know what area you are located in and I can check my contacts. Now that you realize their is so much to be aware of you are already ahead of the game!!
I also agree with Gloria on this one. Regardless of whether the goverment had anything to do with why loans were being given out so easily it is the person who should know thier own limitations. I agree sometimes we can all splurge however to splurge in on something as large as the purchase of a house would be foolish without doing the appropriate research on your own. I wonder if the goverment is now regretting the whole idea of giving out all of those loans for house purchases?
You’re absolutely correct, Tammy when you say “There are so many other factors to owning that someone who comes from a rental view may not be aware.” Homeowners have so many obligations are responsibilities that renters do not have to deal with. Besides, home maintenance and the up keep of the house, homeowners also have additional property taxes and school taxes that renters are not faced with, which can be a huge burden on someone if there are not prepared.
Your summary to home owning vs. renting is so true. It is and was the american dream
for many people. I also agree with you when you should consult a professional to assist in building your nest. Thank you for a very well put together information
Sorry, I guess sometimes, I ramble and loose the point of my opinions. But, you are right, I know a lot of good, honest real estate agent and mortgage brokers that would not give consumers a loan that they could not afford. I saw these people loose their business because of this. Many changed careers because they could no longer make an honest living in real estate. I know of a big name, real estate company that was forced into bankruptcy because they employed a greedy and selfish salesperson that was more focused on making money than doing the right thing. Many of his customers filed lawsuits against the salesperson and the broker when the housing market failed and actually won
This is the main reason I left the real estate profession. I realized I could not compete with dishonest agents and it made it hard for me to sit back and see how someone could take advantage of a person with such a large purchase. I lost several clients to agents that gave them loans I knew they could not afford. But, many of this clients already lost their homes. It saddens me because those that allowed me to work for them still have their homes and even though they would have wished for something better and bigger, they are greatful they at least have something while those that went elsewhere now have nothing.
You are right owning a house is the most difficult step in family or personal life, people take years to have the their dream homes to be as their wishes, and sometimes people declaim good deals for something in there heads, in some counters thy government provide the land and the loans for building up the land, to make sure all the citizens have commendation for there families
I agree, you should take some time to do the research when buying a home or evening leasing it. I just recently purchased a home 2 months ago and I just got the keys to it 2 weeks ago. In the end it took us almost a year to find the right house after we started to look at different areas. In the end we ended up researching schools (not just elementary schools but High Schools), the distances to work and our children’s activities (like soccer practice and Ta Kwon Do); we also talked to tax professional on our benefits of owning our house as well the savings it will cost us each month between our mortgage payment and rent.
I think you are right, you should look at more then one real estate agent. I too, had the same problem at first. Our real estate agent was more consider with the sale then what we wanted. After we met with her, I made a list of everything I was looking at; from distance to work, the closests school in the area, crime rate, nearest stores and food locations, etc. My mother in law is a real estate agent and even she was more about getting the sale then what her client’s needs were.
I did know that. A friend of mine works as a attorney for a company that sues lending companies. What happens is those home buyers are upside down on the loan or getting ready to foreclose on their homes and the home owners hires my friends company to review the loan details and then they usually find where the lending companies were changing the home owner’s information in regards to their incomes or if they have the means to repay the loan and then the attorneys normally get the foreclosure reversed as well as the interested removed plus many other things so the home owner’s can remain and keep their homes.
I have not had to endure this as of today but I am getting some helpful information with all of the posts. It seems as though everyone agrees that a lot of research needs to be a part of your plan. It seems as though not only should we research the schools, the crime rates, etc. but that we should also research some real estate agents/companies through the internet, word of mouth, and so forth.
Home ownership versus leasing in today’s society had brought a very intense thinking process for families today. Home ownership is a wonderful thing especially if it’s your first home or second. The problem that I see today with leasing can cause great hardship with people. People are losing their homes due to financial hardship and many of them are truing to leasing homes. The only problem I am seeing with this process is many are leasing these homes from homeowners and a lot of them are behind in their mortgages. The lessors are not being notified of the situation, the next thing you see is someone knocking at your door trying to evict you from the home. Then, the question is ask what happen to the money that I have been paying you. In my opinion with the economy being the way it is now there should be a law of some type that can/will protect people that lease homes. If a homeowner lease their homes it should be made mandatory that they notify the lessor that they are having difficulty with their mortgage
I also agree with you regarding purchasing homes in other countries. My husband is from the Dominican Republic and there are no annual taxes involved. You purchase your land and home at a set price and that is it. You will never worry about a variable rate or annual taxes on the home you have purchased. Unfortunatly the down side to this whole idea is that there are not many building codes and so you are probrobly not purchasing a home with the same quality as what you would get here in the states.
Yes, it is most important to research the location’s schools, taxes, crime rates, and especially the real estate companies in the area. If the location checks out, that does not mean you will receive an agent who will provide you with the necessary needs you are looking for. In addition, some word of mouth referrals are not always the best either, you may have different needs then the personal that referred the agent. It is always best to explore a second and third opinion when making major decisions.
I never experienced the negative effects from working with a real estate agent that is consumed with the sale, rather than my needs. However, I will definitely keep all of the advice and experience in mind when I soon begin on my journey with purchasing a home. I hear all the horror stories of purchasing a new home that is a major reason I have not looked into purchasing a home yet. I do not want to have future financial burdens and added stress due to the fact that my real estate agent is all about the sale, and does not take in to consideration regarding my needs.
Wow – this discussion has really grown! I am encouraged for at least this has opened the discussion and all that is involved with the process. In my opinion, it is always good to be armed with information, to be aware of everything with the process and to know the actual costs as well as projected costs. And I always would prefer to estimate high and come in lower. Computers and internet have truly opened the doors for people to do their due diligence and hiring the “right agent” should be an interview process so that you are comfortable with the selection.
The Real Estate Agent you next choose to work with will need to be on their toes! Personally, this means I can still stand out in the crowd too 🙂
Yes – home ownership in other countries is much different than what we experience here in the US. You should also realize though, in many places, the amenities we take foregranted (such as indoor plumbing, electricity, internet, etc) are not necessarily an option for them. When I see that a “closet” size room is now a comfortable room, or a renovated “restroom” is now a happy couples “Cottage” – it just puts things in perspective. Amazingly, when my mom first purchased her home, it was a quaint, 3 bedroom, with basement, upstairs, etc. – but in no means was it “fancy.” I have worked with some first time home buyers who are looking at 3000 SF, custom home with luxury finishes. Not my place to judge either way – in the end, it IS what the client wants that should matter.