Monday, 12 September 2016

Home Buying Series: Renting vs. Buying

To rent or to buy?
Buying your first home is most likely the biggest financial decision you will ever make so over the next few weeks we're going to delve into that process with a new Home Buying Series. We'll start off today by figuring out if you're ready to jump into home ownership and continue through all the steps including posts about the Home Buyer's Plan, mortgages, closing costs, etc. 

First things first, are you even ready to buy? The common bias is that it is always better to buy than to rent but you need to know that there are pros and cons to both. Today we're going to look at some of these pros, and cons so you can better gauge whether or not you are ready to make the jump into home ownership. 

The biggest argument against renting is that you aren't building any equity, but this isn't always true. Rental payments are often lower than what your mortgage payment would be, and you also don't have the additional costs associated with owning a house which should mean that you have some extra cash flow. If that's the case you should be investing that surplus and building up your savings...and what does that mean? You're building equity! 

Home ownership also comes with a whole lot of responsibility. You no longer have the ability to call up your landlord if the furnace craps out or the sewer backs up, you have to deal with this yourself, and you're on the hook for the cost. 

There's also a lot of additional costs you will face when you buy a house. More often than not your water, power, and gas bills will be included in your rent, so you don't really think about them but those will now all be over and above your mortgage payments, plus you'll have property taxes and house insurance to pay for. There will also be lots of one-time purchases that will come up, especially if you're moving from an apartment to a house for the first time (like we did). Have a lawn? You'll need a lawnmower. Sidewalks? You'll need snow shovels. You get the idea. 

Houses cost a ton of money, shocking right? If you can, you'll want to save up a 20% down payment so that you can avoid paying the extra insurance premiums from CMHC (Canada Mortgage and Housing Corporation). That means if you're buying a place that's $300,000 you'll need $60,000 for a down payment...better get saving right? You'll also need some extra to cover lawyer fees and all those little extras we already talked about. 


Buying your first home is undoubtedly going to be a huge expense and will take a lot of planning and saving. However, it can also be a great investment. It's a challenge to build the same amount of equity through saving and investing as you can paying down your mortgage. Interest rates are low right now (but be prepared for them to go up) so your mortgage payments will be about as small as possible, and you'll be paying more to your principal than to interest. Hopefully, the value of your home will also increase over the time you own it, and you'll build more equity that way. This is not a guarantee, though, especially if you live in Vancouver or Toronto where the real estate market is kind of bonkers. Do your research on house prices in your area and what neighbourhoods are most desirable. 

Another big pro of owning your own place is that it's all yours and you can do what you want to it. Renting comes with less responsibility, but you also don't have the pride of ownership you get from owning your own place, and you don't have much flexibility when it comes to decorating and renovating the way you want. Putting your own touch on a home makes a huge difference, and it's nice to be able to try out a new paint colour without getting permission from your landlord. 

Before jumping into the housing market with both feet make sure you weigh your options and figure out what makes the most financial sense for you. If you've got any questions feel free to ask away in the comments and stay tuned for next week when I talk about saving for a down payment. 

Check out the other posts in this series: 

1. Home Buying Series - Renting vs. Buying
2. Home Buying Series - Saving Your Down Payment
3. Home Buying Series - Home Buyer's Plan (HBP)
4. Home Buying Series - Mortgage Pre-Approval
5. Home Buying Series - House Hunting
6. Home Buying Series - Closing Costs

To rent or to buy?

2 comments:

  1. Tom Said:
    Superb reading about renting vs buying! As a reader, I would like to say that "Home Buying Series" will help people a lot in the long run. But people should take the decision which things he have to do before buy a home. Thank you so much.

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    1. Thanks for the comment Tom, I'm glad you enjoyed the post!

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