Buying a House vs. Leasing an Apartment: Making an Informed Decision
As winter approaches, falling leaves are yielding way to falling snow in many parts of the country. As outdoor maintenance on your home increases, you may be wondering if the work is worth it — or you may be longing for a place of your own. Some love being outdoors and doing handiwork. Others prefer the convenience of a superintendent — someone they can call when the kitchen sink stops up during the holidays.
Deciding to buy a home is a big decision and can offer a wide array of benefits. But how do you know if it’s the best choice for you? Perhaps leasing makes more sense at this stage of your life, wherever that may be.
When evaluating the pros and cons of buying a house versus leasing an apartment, your answer can vary depending on the part of the country — or even the state — you live in. It’s important to consider all facets of the buying or leasing decision — including the emotional, social and financial ones. Let’s take a comprehensive look at your options to see what makes sense for you and your situation.
Things to Consider Before You Compare
Before you can even compare the two options, you have to find a community you’d like to call home. Consider these factors when choosing a location:
- How are the schools ranked? If you have kids, school districts are going to be a key deciding factor. Review state-issued rankings, like the Department of Education’s Top-to-Bottom School Rankings when you consider homes for sale in Michigan. You’ll see schools’ percentile rankings, alluding to their quality. For example, most of South Lyon’s school district is highly ranked. It’s frequently recognized as one of the best school systems in Michigan. (Our Woodland Ridge community is also conveniently located within this school district!)
- Is your community economically stable? When you’re ready to make a commitment to an area, ensure that the community can provide basic services like picking up trash, having responsive fire and police departments and maintaining roads and public facilities.
- What stage of life are you in? Generally, younger people benefit more from leasing, while it makes more sense for older adults with families to own homes. And as individuals near retirement, leasing may again become an attractive option. Hollis Greenlaw, CEO of United Development Funding, states that “Less than 40 percent of people under 35 years of age own homes, over 60 percent of people over 35 years of age own homes, and over 80 percent of people over 65 years of age own homes.”
- What’s your breakeven point? How do you know whether buying or leasing makes financial sense? Several online calculators can help you answer that question. Accounting for locations in the United States, home prices, down payments and monthly lease amounts, these calculators evaluate how many years it will take before the cost of buying equals the cost of leasing.
- Are you comparing apples to apples? A month’s mortgage isn’t comparable to a month’s rent. Don’t forget to add to your monthly mortgage things like interest, property taxes and insurance.
Now that you’ve built a foundation for your decision, you can get to the heart of the matter: Which is more appealing to you? Do you pay a monthly mortgage and keep up with routine home maintenance, hoping your home grows in value over the years? Or do you exchange monthly rent for a maintenance-free residence, trading real estate equity for the freedom to move on a whim?
Not sure? The comparisons below will help.
Weighing the Pros and Cons of Buying a Home
First, let’s tackle the home buying option. What are the pros, cons and costs of owning your own home? It’s important to have a clear understanding of what’s involved.
Pros of Homebuying
There are many positives to buying a house, including the following:
- Predictable monthly payment. Your mortgage payment typically stays the same each month, helping with budgeting.
- Portfolio diversification. Having a diversified investment portfolio is important in today’s volatile market. Real estate is an easy way to add another asset class to your investments.
- Tax benefits. As a homeowner, you can deduct expenses like mortgage interest, property and real estate taxes and refinancing points. Some states, like Michigan, offer a homestead property tax credit. This means the states help pay some of your property taxes if you meet certain requirements.
- Equity building. Home equity — or the portion of your home you truly own — is a valuable asset and is something unavailable to those who are leasing. With each mortgage payment, the portion that goes toward principal represents an increased ownership of your property. As you pay down your mortgage and your home gains value, your home equity increases. You might also build equity by tackling smart renovation projects that increase your home’s value by more than the project’s cost.
- Option of leasing property. While you probably don’t think of your home as an income source, you could. Leasing out part or all of your home can bring in income — just ensure you abide by all local lease laws.
- It’s yours! Want to paint the walls orange? Knock down a wall? Go for it. Renovations are a fun privilege that most lessees don’t get to enjoy.
- Becoming part of a community. If you make the commitment to buy, you’ll be vested in the growth and development of your community — keeping it great for the next generation. Volunteering at local schools or starting a neighborhood watch program are great ways to meet people and help put down roots.
Cons of Buying a Home
Of course, there are negatives to buying a home as well. They include:
- Stress. Stress often comes as part and parcel of owning a home. And when you make this decision alongside other momentous lifestyle decisions — like getting married or having a baby — the stress can cause missed payments. This can be devastating to your credit.
- Loss of flexibility. Being financially invested in — and tied to — a property means it’s difficult to pack up and relocate if the job market becomes tough or family obligations force you to move.
- Subject to volatile markets. A house’s value can go down just as easily and quickly as it can go up. You’re no longer assured that this investment will grow in value over time or will be a future source of wealth.
- Required maintenance. Once you’re a homeowner, you’ll find that your home requires regular upkeep and maintenance and attention to surprises like flooding and electrical shorts. From cleaning the gutters to replacing old appliances to performing routine HVAC maintenance, plan to pay 1% of your home’s value yearly on these types of items.
- Responsibility for renovations and improvements. At some point, many parts of our home become “fixer-upper” projects. Whether it’s renovating a bathroom or adding outdoor living space, project costs can easily reach tens of thousands of dollars. As you make improvements and increase your home’s appraisal value, keep in mind that you might not recoup the investment when it comes time to sell.
Costs Associated With Homebuying
The costs outlined below — some one-time costs, some recurring and some infrequent — don’t fall squarely in either the pros or cons category. Nevertheless, they’re important to consider when making your decision to buy or lease.
Unexpected costs. Air conditioner go out in the heat of summer? Leaky bathtub causing a deluge in your dining room? You’re on the hook for these costs, so make sure you have a “rainy day fund” for these expenses.
Prepurchase financial costs. Before you buy a home, you’ll incur numerous costs. Although most listed here are one-time expenses, you need to be financially prepared to make these payments. A few of the costs include:
- Down payment. You need to be financially prepared for the initial outlay of cash required when purchasing a home. Your down payment — the portion of the total amount due you pay upfront — can range from 3-20%, depending on your credit score, the local real estate market and your mortgage type.
- Appraisal. The costs for appraisals typically range from $300-$500. Lenders require appraisals to ensure the offer price and home value match.
- Inspection. Most homebuyers aren’t knowledgeable enough to find potential defects in a home. So, it’s important to hire an inspector who can identify problems that should be corrected before closing. An inspection’s costs are similar to those of an appraisal.
- Property taxes. You’ll need to pay a yearly tax on your property, including a prorated tax based on the period between the closing date and the end of the tax period. If you own a HomeFirst™ home, you don’t have to pay property taxes. Because our homes are a land lease, you pay only a site lease.
- Closing costs. Be prepared for a number of one-time costs at closing. They can total 2-4% of the purchase price and include things like title insurance, loan origination costs, closing fees and transfer taxes.
When you purchase a manufactured home in one of HomeFirst’s 15 communities, you can bypass some, if not all of these costs. Our land-lease program makes purchasing a manufactured home for sale in Michigan a breeze!
Recurring costs. We know, those upfront costs seem like a lot. And the below recurring costs can seem overwhelming, too. But it’s important to understand the full scope of the financial costs.
- Loan payments. You’ll be making your monthly loan payments for the life of your mortgage, usually 15-30 years. Fixed-rate mortgages will have a consistent payment over the course of the mortgage, while adjustable-rate mortgages vary as the loan’s benchmark changes. With HomeFirst™ Certified homes, you’ll apply for a chattel mortgage, where your home guarantees the loan. A benefit of this type of mortgage is that if you choose to move the home to a new location, the mortgage can remain in effect.
- Homeowner’s insurance. Required by lenders at closing, property owners must pay this premium before closing, and then it becomes part of your escrow payment going forward. Premium costs vary, based on factors like the home’s appraised value, location and contents, as well as your credit score, claim history, deductible and coverage amounts.
- Property taxes. These taxes are critical to maintaining the amenities that drew you to a city, such as schools, roads and parks and recreation. Because they can vary widely from area to area, ensure you know the tax rate before you buy.
- Utilities. Don’t forget about the costs for utilities — water, sewer, electric, gas, etc. — as well as other services like cable, internet and phone service. Trash and recycling services are another recurring bill, and sometimes this fee is included in homeowners’ association (HOA) or property owners’ association (POA) dues.
- Honey-do lists. The costs don’t end at closing! When you own a home, you’ll often spend weekends and free time doing chores and home maintenance. Are you ready for the commitment? Are you handy around the house? Ensure that you can complete basic repair jobs, like unclogging toilets, to avoid the high cost of repair bills.
- HOA or POA fees. These fees — which may be billed monthly, semiannually or annually — generally cover the costs of maintaining common areas, such as pools, parks and landscaping. There may also be special assessments to cover large-scale projects when there aren’t enough reserve funds to cover them. Failure to pay these fees can result in late fees, liens or even lawsuits.
- Infrequent costs. These costs don’t follow a predictable schedule. They may happen once or twice. They may never happen. But it’s important to be prepared for them.
- Furniture and decorating. Moving into a new home often requires new furniture to fill the space and possibly some new appliances, causing you to purchase new ones. You may want to update the space with new lighting fixtures or ceiling fans, and you may need a grill for that new outdoor patio.
It’s important to remember that each person gives different weights to each piece of the pros/cons puzzle. You may find out the pros outweigh the cons, while your neighbor thinks the opposite.
Evaluating the Pros and Cons of Leasing a Home
Are you someone who enjoys seeing the world and moving every few years to a new city? With fewer upfront expenses and more flexibility, leasing might be a better option for you. Let’s look at the pros, cons and costs of leasing.
Pros of Leasing
When you’re considering places to lease in Michigan, there’s a lot to account for. Below are some things you’ll want to consider.
- Flexibility. Some people enjoy moving and living in new parts of the United States or even the world. Perhaps your job requires frequent relocation. Then for you, leasing allows the freedom to move without losing your financial interest in a home. You may incur fees if you have to break your lease, but even then, you and your landlord might be able find a way to offset or negate these costs.
- Reduced homeownership costs. While there are some costs you’ll incur whether you lease or own, such as decorating and moving, you won’t have the financial burden of costs like realtor fees, major maintenance expenses and mortgage fees.
- Financial liquidity. Owning a home can be a great asset to your portfolio. But it’s a difficult one to liquidate in the case of a financial emergency. Leasing lets you divert some of your money to liquid assets, improving your financial flexibility.
- No exposure to real estate fluctuations. Properties aren’t guaranteed to increase in value over time. And if they decrease, it’s your landlord who takes the loss — not you.
- Improving or establishing credit. If you don’t have great credit, or you’re young and still establishing credit, leasing offers you an opportunity to build it. Paying rent on time is a great way to boost your credit. And because a good credit score is important — helping you buy a car or open a credit card account — timely payments can help you improve that number.
- Utility coverage. While homeowners are on the hook for the cost of monthly utilities, some or all utilities may be covered under your lease.
Cons of Leasing
And now, the cons to consider. Not always make-or-break items, this list simply makes you aware of the potentially negative components to leasing.
- No tax benefits. You won’t be eligible to deduct any property taxes, homestead taxes or other related mortgage fees while leasing. As a result, it’s possible that your federal tax liability will increase.
- Inability to prevent lease increases. Although you won’t experience lease increases over the course of your lease, your landlord does have the right to increase rent at the end of the term. These increases could be exorbitant, or they may be negligible.
- No building equity. Unfortunately, you don’t build equity when you’re leasing. The money you pay on your lease does nothing to build your financial portfolio.
- No long-term security. Once you’ve signed a lease, you’re committed to its term, and lessee protection laws ensure you can’t be evicted without cause and without adequate notice. But at the end of the lease’s term, the landlord has no obligation to renew the lease. This uncertainty may be troubling to some.
Costs Associated With Leasing
It may seem cheaper to lease, but don’t be fooled. Lessees also encounter some one-time, recurring and infrequent expenses. And just as they do with buyers, these considerations can help you feel confident in your decision as you consider apartments for lease in Michigan.
Upfront costs. You usually incur these expenses when you indicate interest in leasing a property or when you sign the lease.
- Security deposit. This deposit protects the property owner in case you damage the property during the course of your lease. It also provides the owner financial recourse if you break your lease or are late on rent. The deposit isn’t usually more than 1.5 times your monthly rent, and you may be — depending on the wording in your lease — able to use this amount for your last month’s rent.
- First and last month’s rent. Due before you move in and generally due when you sign the lease, the first month’s rent covers your first full month of tenancy, and the last month’s rent covers your last month. Some landlords require the first and last months’ rent and the security deposit at lease signing.
- Application fee. Generally nonrefundable, this fee covers the cost of running background and credit checks, verifying employment and references and more.
- Deposits. You may need to put down a deposit when you agree to lease an apartment — to hold it until you sign the lease. This amount is usually applied to rent or the security deposit when you’re approved for the leased property. You may also need to put down a pet deposit if you’re bringing along Fido or Miss Kitty. These pet deposits are also usually refundable if there’s no pet-related damage to the property at the end of the lease.
Recurring costs. Just like there are recurring costs for potential homeowners, there are costs for those who are considering apartments for lease in Michigan.
- Monthly rent. Although rent will stay predictable throughout the term of your lease, it can go up each time you renew. As with home prices, rent prices can vary widely depending on the community, amenities and size/condition of the property.
- Pet fees. If you’re keeping a pet on the property, you may be subject to pet rent, which may be in lieu of or in addition to the pet deposit mentioned above.
- Lessee’s insurance. Although you don’t have to insure the structure you’re leasing, you do want to make sure you insure the contents — all your belongings. If you’re the victim of fire or a theft, it’s important that you be able to replace your possessions.
- Utilities. The utilities you’re responsible for will vary among landlords and properties. Some may come with utilities included — others may not include any in the monthly rent.
Should You Consider a HomeFirst™ Certified Home?
By now, you might be wondering if a HomeFirst™ Certified home is the right move for you. Consider that with HomeFirst™ Certified:
- Your monthly home payment could be significantly less than the costs incurred for leasing, giving you more value for your money.
- That payment is fixed throughout the term of the loan and would have no prepayment penalty.
- On-time home loan payments can help you re-establish good credit.
- You’ll get an affordable, luxury-style home that lets you invest in real estate and property. Each monthly payment increases your equity in the home.
- The interest on your home loan may be tax deductible — please consult your tax advisor.
- There’s a minimal pet fee for dogs and no monthly pet fees for other community-approved pets.
- Interior modifications to your home don’t require approval.
But we know there are more considerations than just the financial ones when contemplating manufactured homes for sale in Michigan. There are also many subjective factors that affect your final decision. Consider each one carefully to ensure you’ve made an objective, well-thought-out decision.
At HomeFirst™ Certified, we know how important it is to have a place called home, whether you’re buying or leasing. We pride ourselves on building communities, not just homes. Amenities like parks, fitness centers and stunning scenery are not the only reasons for buying a manufactured home through us. Consider these additional benefits to owning a HomeFirst™ home:
- Twenty-four-hour on-site management provided
- Five-year, rate-guaranteed home site leases
- Year-round community activities and events
These are the high standards make our communities a lifestyle choice, not just a house!
If You’re Ready to Get Started, We’re Ready to Help
You’ve read all the pros, cons and costs, and now you’re ready to get started.
What are you waiting for? Let us help you turn your dream of home ownership into a reality! Contact us to get moving — literally — toward your new Michigan home.