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Renting vs Buying: Which is Better for You?
From the day that you move out of your family house, you dream of the day when you finally stop paying rent and buy your first home. But, as you may have discovered, buying a home is not quite as simple as it seems! There is a lot to consider when deciding whether or not to make the move into homeownership.
By buying a house, you’ll be taking on all the pros of being a homeowner versus a renter. But you’ll also be taking on quite a bit of responsibility and giving up on some of the advantages that come with being a tenant. That’s why, before you start your home search, it’s important to weigh the pros and cons of both renting and buying to decide whether or not you’re ready to become a first time homeowner.
Should You Buy or Rent: The Pros & Cons of Each
Repairs & Maintenance
First up in our comparison is every adult’s favourite topic of discussion about the home—repairs. As a tenant, the only thing you have to do when it comes to ongoing repairs and maintenance around the home and yard is call the landlord. They are typically responsible for taking care of any work that needs to be done—unless you’ve discussed an alternate arrangement—so you can just sit back and relax.
As a homeowner, though, repairs and ongoing maintenance are entirely your own responsibility. You’ll need to not only figure out what is wrong all on your own, but you’ll also be in charge of either fixing it yourself or calling in a professional to do it for you, costing you both time and money.
Decorating & Design
If you’ve ever wanted to switch up the light fixtures or even just paint a wall as a tenant, chances are you’ve experienced the headache of getting anything approved with your landlord. Since you don’t own the home as a renter, you need to ask permission from the owner before making any lasting changes. Otherwise, you could end up with a missing damage deposit when it comes time to move out.
If you own your home, though, any decor or design changes you wish to make, you can simply do! That picture-perfect bathroom accent wall you saw on Pinterest? Throw on some coveralls and get to work! The three-tiered deck you’ve been dreaming of? Stop by the hardware store and start building! The sky is your limit in your own house (well…the sky and your budget, of course!).
Flexibility
Decided you don’t like the neighbours and want to make a move? As a rental property tenant, just give your landlord the appropriate notice that you’ll be moving out and leave it all behind! As a homeowner, though, you’ll either need to sell the house to turn it into a rental property of your own to make a change.
Paying Rent vs Paying a Mortgage
While both renting and owning require you to make a monthly payment, they aren’t quite the same. Rent is similar to paying for a hotel room—it is an agreement between you and the property owner that you will financially compensate them for allowing you to stay in their space. A mortgage is more like making payments on your car—the more payments you make, the more of the home you own. This is called equity.
Another difference between the two payments is the amount being paid. Depending on the rental agreement between you and your landlord, your rent could be subject to change at your landlord’s discretion. This could leave you with a rent you can suddenly no longer afford, should an increase happen at the time of renewal. With a fixed-rate mortgage, though, you are guaranteed the same payments for the entire length of your term!
Pet-Friendliness
If you have a furry friend like me, you are no stranger to the struggle of finding a pet-friendly rental property. Most rentals don’t even allow for pets and those that do, often require an additional deposit on top of your down payment. But if you own your home, you can have as many pets as you want, no deposits or approvals required!
Insurance
Every landlord is required to purchase insurance for their rental properties that can cover the home in a variety of ways. This doesn’t, however, include any of your possessions as the renter. If you are renting a property, you have the option of purchasing your own tenant’s insurance to cover your belongings in the home, but it isn’t required! On the other hand, as a homeowner, you are required to purchase home insurance to protect your property.
Other Differences Between Renting & Buying
Tax Benefits – Every interest payment a homeowner makes on their mortgage is a tax deduction later!
Security – Owning a home, the only ones who have a key to your property are those you’ve given them to. As a renter, though, your landlord also has access at any time, along with anyone they’ve given a key to.
Appliances – As a renter, you are subject to whatever appliances are in the home, which may not be quite what you want. As a homeowner, you can choose whatever appliances fit your preferences and budget!
As a renter, you’ll never have the pride and autonomy that comes with home ownership, but there are quite a few advantages to renting that may be better suited for your lifestyle right now. So before making the switch, take some time to seriously consider the benefits and disadvantages of each to decide which is right for you.
And if buying a home is where your heart is at, though, I’m happy to help! Contact me and let’s get started on finding you your dream home today!
The Finances
Mortgage Pre-Approval
The pre-approval step is an important one. After all, it will dictate how much you can spend and will allow you to determine how much you want to spend. Those sometimes are two different numbers. By getting this step out of the way, you are able to make educated decisions based on your financial situation.
Deposit
Once you have decided that you want to make an offer on a property, a deposit is needed to hold your interest in the home. Typically a $5,000-$10,000 deposit is required and the cheque is needed at the time the offer is made. The deposit cheque is deposited once the offer has been accepted and is held in the Century 21 Fusion trust account. This money also counts towards your downpayment and will be forwarded to the lawyers closer to possession day. If you decide not to remove conditions on the home during the conditional period, your deposit will be returned or can be held on to and applied to the next property you find.
Shopping Around
I usually recommend going to talk to your bank and also a mortgage broker to see what the best interest rate is they have to offer you and what other incentives or programs they might have that fit your needs. Remember that a 0.5% difference in interest rates means that for every $100,000 of mortgage amount, you are paying an extra $26 a month. Do the math and this equates to over $7,800 per $100,000 extra in interest costs over the length of the mortgage. Interest rates are important. Also noteworthy – don’t allow too many lenders to pull your credit score. Every time it’s pulled, your credit rating is affected negatively.
Down Payment
A typical down payment for first time buyer’s is 5% of the purchase price. Ensure you have enough money saved ahead of time so you can proceed with finding a home that’s right for you. If you want to avoid paying CMHC insurance fees (which can be substantial), have at least 20% saved up.
RRSP’s
The Government of Canada has a program where qualifying first time buyers can withdraw their RRSP’s and use that money towards their downpayment. It’s called the Home Buyer’s Plan and information on the program can be found here.
Calculating
Use the mortgage calculator link below to figure out different scenarios based on differing purchase prices. You can find out how much of a downpayment is required and what your payment will be along with details on a payment schedule, and you can add in any other costs that you may have. Using an affordability calculator online is a good way to help you work backwards and will calculate a purchase price you are comfortable with based on all other criteria imputed. Click here to access the Mortgage Calculator.
Costs Associated With Your Purchase
Buying a home can be overwhelming, especially when large amounts of money are involved. Here’s what you can expect with costs associated with your purchase.
Inspections
If you’ve decided to hire a home inspector, it will cost you around $400. I can arrange any other inspections as well and depending on what they are, the costs will vary and all will be your responsibility to cover.
Real Estate Fees
As a buyer, you don’t pay for my services. My commissions get paid through the seller of the house you’ve chosen. Once you decide to sell your home, you will then be responsible to pay for both sides of the commission.
Legal
Lawyer fees can vary but here’s what you can expect in fees for a typical purchase:
$800-$1000 + GST + PST for lawyer fees
+ $3/$1,000 of your purchase price for the land titles transfer
+$150 for mortgage registration
+ ~$150 for misc expenses like tax search, courier charges, postage, photocopying, etc.
If you would like a more accurate total, please contact your lawyer and they can let you know a closer approximation of what your total fees will be.
Surveyor’s
A surveyor’s certificate is a piece of paper that shows the outline of your home and any outbuildings (usually a garage) that are within the property lines. It will have dimensions to the buildings and also the lot size with the legal description. Often the seller will have a current surveyor’s certificate available and it gets handed down to the next owner. If it’s not available, or the seller never had one to begin with, you can purchase title insurance for your property. The lawyer requires either one and will make arrangements in ordering one if a certificate is not available.
Taxes
Often the seller pays their property taxes monthly to the City. If your possession date doesn’t fall on the first of a month or if the seller pays their taxes annually instead, there will be an adjustment that will need to be made. For example, if your possession is the 15th and the seller has paid their taxes for that month, you will be responsible in reimbursing them for 1/2 of the month that had already been paid. The lawyer will adjust the amount owing and charge you for any difference.
Hook Ups
If you are setting up new utility accounts, often the service providers will charge you a hook up fee. These will vary for the provider.
Movers
Hiring movers or any other moving expenses you might incur are also something to make note of so you don’t end up with any surprises.
Repairs
If there are repairs that are needed to be done shortly after moving in, plan for that expense as well. Often those things get added to the to do list and never quite get done until you’re ready to sell.
Knowing what the costs will be upfront will make the entire process less stressful and gives you a better idea so that you can be prepared.
While Your Home is Listed
Things to Know While Your House is For Sale
Now that your home is for sale, what do you do in the meantime? Here’s a list of a few points to remember and take note of so you’re not feeling helpless throughout the process.
Be Flexible
Be as flexible as possible with showing times. Make it easy for buyers to come and view your home so you don’t miss out on a potential sale. I realize that there are circumstances when this doesn’t allow but being as flexible as you can without too much of an inconvenience to your schedule will have it’s benefits.
Open Houses
I leave the decision of whether or not to do an open house up to my sellers. I’ve found that in some instances, an open house was useful and resulted in a success. However, more times than not, an open house hasn’t resulted in anything other than the neighbours coming over to visit. I leave that decision entirely up to you.
Be Reachable
I will need to contact you for showings and any offers we get and I will need to be able to get ahold of you on short notice. If you are going away, I’ll also need to know that.
Keep Clean
Try to keep your house as clean as possible during times of showings and open houses. We want to eliminate the objections a potential buyer might have and if your house shows great, then it’ll be that more attractive to buyers.
Updates
Throughout the time when your house is for sale, I will send you weekly updates in regards to the number of viewings your home has had on certain websites as well as any new comparable houses for sale and ones that have just sold. This will help keep you informed about the market in your area and help you make an informed decision about price reductions. I will also follow up with agents when a showing has occurred and what the feedback has been so you know what, if any, improvements can be made on your part.
These few things will help you reach your goal of selling your home for the most money and in the least amount of time.
What Are the Costs of Selling?
You already understand the importance of hiring a REALTOR®, but what are the fees that you will incur? As a seller you don’t pay for any inspections requested by the buyer or a land titles transfer fee but there are a few costs that you will encounter.
Commissions
This is the big one. As a seller you pay both the buying and selling agent’s commissions. When you purchase a home, you won’t have this cost. This will come out of your proceeds at the end from the lawyer. Commissions are typically a percentage of the sale price of the home and most often you will see a percentage that looks like 6/4/2. This means that the commission is 6% of the 1st $100,000, 4% of the 2nd $100,000, and 2% of any remaining balance. I also can offer a flat fee commission. I find that helps with those who are sticking to a strict budget and need to know the amount they will be paying upfront. Remember, I only get paid if your house sells.
Legal
There are also legal fees associated with the sale of your home. Although it’s less than if you were purchasing, they will cost you usually between $700-$800 + GST + PST
Penalties
There may be a payout penalty on your mortgage if you are planning on selling and paying out the mortgage before your term is up. The penalty is usually 3 months of interest or the interest differential with your rate and what the current rate- whichever is higher. If your mortgage has a portability clause and you are planning on buying something after you sell, that is a great way to avoid the penalty altogether.
Miscellaneous
If you are planning on hiring cleaners to do a deep clean pre-sale, hiring a carpet cleaner, or hiring someone to do repairs, these will all have to be accounted for in the budget.
These costs and fees may seem like a lot of money but they are designed to ensure that you will achieve the most money once your house does sell and some are unavoidable. It’s better to know up front what these costs will be and will make budgeting for the new house that much easier.
