When looking at renting vs. buying a home in and around Loudoun County, there are quite a number of things to consider. To simplify, we've broken down the costs and benefits to both options.
Upfront Costs: While renting definitely involves less upfront costs than buying, it is not without its expenses. Moving into a new rental will require a security deposit (sometimes a portion of which is non-refundable), first month’s rent, and moving costs.
Monthly Rent: You will, of course, budget for your monthly rent, but unless you’re fortunate enough to live in a rent-controlled area, there is a good chance your rent will increase over time - and, in some cases, every year. It is important to consider this potential increase over time and if rising rent cost will cause you to move in a year’s time.
Pet Rent: Almost every landlord will charge tenants an additional monthly fee to have pets. This is typically to cover the additional wear and tear pets create on a property.
Laundry: If your rental does not have an in-unit washer and dryer, you’ll need to factor in the money and time you will devote to schlepping to the nearest laundromat every week.
Zero Responsibility for Maintenance: As a renter, your sole responsibility when something breaks is, not to find a repairman, but simply to call your landlord.
Non-Strict Credit Requirements: When you’re renting, your rental history is usually of more concern than your credit score. Though credit history is checked, you’re not likely to be turned down unless you have a bankruptcy or judgement on your record.
Included Utilities: Occasionally, you’ll find that dream landlord who wraps your utilities into the one-time monthly rent payment, meaning you aren’t dealing with seasonal fluctuations.
BUYING COSTS - Upfront
Earnest Money: It is customary to provide an “earnest money” deposit when submitting an offer on a home. This can be anywhere from 1% to 3% of the total cost of the home, which will then be credited back toward your closing cost.
Down Payment: Down payments vary widely, depending on the local market and your financial situation. However, there are First Time Home Buyer programs, which can sometimes allow for 100% financing.
Home Inspection: Before you sign the paperwork, you’ll want to have a certified Home Inspector review your property for any inherent problems, such as foundation issues, electrical code violations, etc. Most inspections are around $500 - and they’re worth every penny.
Closing Costs: Closing costs can include loan origination charges, lender’s and owner’s title insurance, state and local transfer taxes, recording taxes, first month’s mortgage interest, and closing fee. As a rule of thumb, you can expect your total closing costs to range from 2% to 4% of the final purchase price.
BUYING COSTS - Recurring
Loan Payments: You will be paying both principal and interest on your loan payments. With a fixed rate mortgage, your payment won’t change for the life of the loan. Your loan is part of your monthly escrow payment.
Property Taxes: Taxes depend largely on your municipality or county, so you may want to research the area in which you are hoping to move. This will also be a part of your monthly escrow payment.
Homeowners Insurance: Like with any insurance policy, homeowner’s insurance varies across the board. This is usually a cost wrapped into your monthly escrow payment.
Maintenance: As a homeowner, you are responsible for all upkeep and recurring maintenance items. These items, when added together, tend to be pretty regular and should be considered in your monthly budget.
Building Equity: Every payment you make toward your loan’s principal represents a portion of equity, or ownership. Eventually this can equate to refinancing for a better interest rate, and therefore a lower loan payment. And of course, there is the increase in property value over time that you benefit from as well.
Tax Benefits: There are several tax benefits available only to homeowners. Renting? Not so much.
More Creative Freedom: When you own a home, you have much more freedom to make changes to the home that suit your taste. Tired of white walls and outdated cabinets? Make any changes you like - whatever suits your fancy.
Fixed Monthly Rate: You will have unexpected expenses no matter where you live, but by owning a home, you will be securing a loan that will remain the same for the life of your mortgage (unless you have an ARM). Unlike renting, you can count on your payments being the same from year to year - and usually less than rent.
More Space: Comparing rentals in your area with what you can get for the same price of a mortgage, you’ll notice a very big difference in the amount of space available to you. Renting for $1,500/mo might get you a 900 sqft 1 bedroom apartment in the suburbs, but a mortgage for the same will provide a 3 bedroom house with a yard.
In short: renting is great for short term needs, while buying may better suit long-term needs. Truthfully, with so many factors, the only person who can determine whether you should rent or buy is you. Be sure to way both sides when making your decision, and know there is a multitude of information out there supporting both sides.
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