2022 is finally upon us, and if you’re looking to make changes to your living situation next year, you may be struggling with making a decision between renting and buying. Making such an important decision can be challenging in a constantly changing and unpredictable real estate market.
Discover what you need to know about the 2022 real estate market as it relates to both renting and buying:
Pros and Cons of Buying a House in 2022
Here are some pros and cons of buying a house in 2022 to help you make an informed decision:
Record low interest rates: Right now, interest rates are at an all-time low. However, they are expected to rise throughout 2022 as the economy continues to rebound from the COVID-19 pandemic. So if you’re looking to take advantage of low interest rates that boost your purchasing power, you may want to consider buying a house in 2022.
Expected home price increases: Even with the real estate market slowing down, you can still expect to see price increases that are larger than normal. These are ranging from the high single-digits into the teens. So if you’re looking to avoid paying up to 15% more for a house in 2023, then you may want to consider buying in 2022.
Ability to build equity: When you own a home, the money that you’re paying every month goes towards your home equity. Equity is used for a number of different things, including home equity loans to finance home renovations, starting a business, going back to school, etc.
Freedom to make changes: Owning a home means that you can make as many changes to the property as you want. If you don’t like the flooring, you can change it. If you want a new kitchen, you can renovate it. If you want to add a pool, you can do it. Essentially, you can make your house meet your needs.
Potential tax benefits: No one likes doing taxes, but the process could be more rewarding when you own a home as you may be eligible for certain homeowner tax benefits. For example, you may be able to make deductions based on your mortgage interest payments, your private mortgage insurance (PMI) payments, your mortgage points payment, and your property tax payments.
Stable and predictable payments: Finally, owning a home comes with monthly payments that are more stable and predictable. While your property taxes and homeowner’s insurance costs may change slightly, your actual loan payments will not change so long as you have a fixed interest rate loan.
Requires a substantial initial investment: Buying a home requires a substantial initial investment in the form of a down payment and closing costs that easily total thousands of dollars. You will need a down payment of at least 3% of the home’s purchase price, and you will need to pay closing costs that can add up to 5% of your loan amount.
However, there are down payment assistance programs out there to look into if you’re having trouble coming up with the money to cover that cost.
You may also be able to wrap your closing costs into the amount of the loan so that you don’t have to pay them in cash at the time of closing.
Unexpected maintenance and expenses: When you own a home, you as the owner are responsible for paying for maintenance costs and incidentals. For example, say the air conditioning system goes out and needs to be replaced; you have to pay for that. Or say the roof starts to leak and needs to be fixed; you’re on the hook for that too. This is why it’s so important to have a substantial emergency fund to cover these unexpected costs.
Harder to move: Owning a home makes it harder for you to move since you’re locked into a 30-year mortgage rather than a one-year lease. In order to move, you first need to sell your house. If you need to move quickly after purchasing it, you may end up losing money as a result.
Home values may decrease: While it’s impossible to predict the future, there’s always a possibility that home values may decrease in the future. However, any decreases will almost certainly be temporary, and you can make them up by staying in the house long-term.
Pros and Cons of Renting a House in 2022
Here are some pros and cons of renting a house in 2022:
Smaller initial investment: When you rent, you don’t have to have as much money on hand to move in. Instead of paying for a down payment and closing costs, you usually only have to pay for your first month’s rent and a security deposit that you can get back at the end of your lease. You may also have to pay nominal application fees.
No responsibility for maintenance: As a renter, you also aren’t responsible for the maintenance of the home or apartment. Instead, the landlord is responsible for both making and paying for the repairs. This gives you the peace of mind that you won’t have any additional expenses on top of your rent.
Easy to move: Renting also makes it easier for you to move since leases are usually short-term in nature. So instead of feeling like you have to stay somewhere for several years before you can move, you can move at the end of your lease term. Depending on your lease, you may be able to break it even before it ends.
Not building any equity: As a renter, the money that you pay every month in rent is going to your landlord. Your landlord then uses this money to pay the mortgage, insurance, taxes, and repairs for the property. So essentially, you’re paying for someone else’s mortgage while not building any equity for yourself.
Potential rent increases: While leases may be more short-term and flexible in nature, they also come with the possibility of rent increases every year. Rent increases have been particularly large lately and show no signs of slowing down — reaching the double-digits in many places. While you may be able to secure a lease for a reasonable rate for a year, the odds are that it will substantially increase after that period.
Inability to make changes: When you rent a home, you have little to no ability to make changes to the property since you’re just the tenant and not the owner. So depending on the terms of your lease, if you don’t like a paint color or the carpet — there’s really nothing you can do.
Limited stability: Finally, renting comes with a general sense of instability since you’re only locked into a year-long lease, after which the landlord may increase your rent and force you out of the property. Alternatively, the landlord may decide to sell the property or move back into it themselves. At the end of the day, as a tenant, you’re at the mercy of your landlord. As a homeowner, you’re in charge of your own destiny.
Factors to Consider When Making the Decision to Buy or Rent
Even with these general pros and cons in mind, it can be difficult to determine whether you should rent or buy in 2022 based on your own situation.
Here are some personal factors to keep in mind when making your decision:
1. Your Financial Situation
Your financial situation plays a role in whether you should rent or buy in 2022. For example, if you have substantial savings and could easily cover the cost of a down payment and closing costs, it might make sense for you to buy. However, if you have minimal savings and are struggling to make your rent payments, then you’re not ready to become a homeowner.
You also need to consider if your financial situation qualifies you for a mortgage loan. Lenders are looking for borrowers who are financially stable based on their credit scores, employment histories, and debt-to-income ratios (DTI).
So if you have a great credit score above 740 that will earn you the most favorable interest rates, it might make sense for you to buy. On the other hand, if you have a low credit score or are trying to rebuild your credit score, it would be hard for you to secure a mortgage loan at a favorable rate.
If you have a stable job history that goes back at least two years or have a job offer resulting from an advanced degree, you would likely qualify for a mortgage. On the other hand, if you have a spotty employment history or have been self-employed for less than two years, you’re likely stuck renting for a bit longer.
Finally, if you have a low DTI that indicates that your gross monthly income is substantially greater than your monthly debts, you’re in a good position to buy a home. Yet, if you still have tons of debt from student loans, auto loans, or credit cards, you may need to pay down these debts before you can realistically purchase a home.
2. Your Living Situation
Your living situation plays a role in whether you should rent or buy in 2022. If you like the area you’re in and are planning to stay there long-term, then it might be a good decision to put down roots by buying a home. Or, if you’re planning on moving to a new city or state in the near future, you should probably stick with renting until you find a place you want to stay in long-term.
3. Your Personal Goals
And last but not least, your personal goals influence whether you should buy or rent in 2022. Is homeownership something that’s important to you? Do you want the ability to build equity in the property and make the changes that you want? Do you want to be able to personalize a home based on your own taste and style? Or do you like the idea that you have the flexibility to move around as you wish with no responsibility for maintenance and upkeep?
Homeownership is not for everyone, so it’s important to consider what you want to do instead of only considering what society wants you to do, especially in regards to such an important and life-changing decision.
The Final Rundown on Buying or Renting in 2022
While there may be pros and cons to homeownership, the pros tend to outweigh the cons in many circumstances. If you’re still not sure if you’re ready for homeownership, feel free to reach out to the lending experts at Vaster Capital to get more information on if you qualify and what you qualify for.