1. Why to Decide “Rent or Buy”?
When the urge to buy a house kicks in, the first thing you should do is to step back and evaluate whether it makes more sense to keep renting or to buy. One of the best ways to evaluate this question of rent vs. buy is to calculate exactly what you are in for financially. To determine if you should buy, you need to figure out how much you can afford.
2. What “Rent Vs. Buy” Calculator does?
This rent vs. buy calculator breaks down your rent payment with increases and your mortgage payment so you can see exactly how much of your money is going where with either option. It lets you see what your home purchase benefits could be as well as how much your savings can be with renting. This is a great tool to have so you can determine if you can actually afford to buy a home at this juncture in your life.
The only way to decide if it is truly better for you to rent or own is to take a hard calculated look at all of the options. This is a subjective question and the answer will vary for each and every person. Using an online rent v buy calculator to help you get closer to your answers is a wise as well as convenient thing to do.
The “Rent V Buy” calculator below will provide you an idea of the relative costs of renting vs. purchasing a home. This will calculate both the short term (one year) and long term costs and benefits of purchasing vs renting.
3.Point to consider?
There are good points and bad points to home ownership, just as the same is true of renting. An example of the sunny side of home ownership is the equity you can acquire in your home while a stormy point would be that all the costs of repairs are now yours. The same can be said for renting. When you rent you are not responsible for sometimes-costly repairs but then again you aren't in your own home or building up any equity.
4. Canadian Dream to Own Real Estate Property.
Part of the Canadian Dream is to own your own home, whether it be a Condo, Townhouse, Detached or Semi-Detached house. The financial reality is that a home is the largest investment most people ever make. For many, it becomes their most profitable investment; for some, it becomes a financial and emotional disaster.
5. What’s happening to GTA rental market?
With rents in GTA (Greater Toronto Area) continuing to increase, it's making more and more sense for people to purchase homes rather than renting. In addition to building equity in a home you own such as paying off your mortgage, Real Estate price appreciation, you could save significantly on taxes.
6. Questions to ask yourself?
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Should you rent or buy a place to live?
- What kind of home does your family need?
- How much space is needed for your family and their activities?
- How much money do you have to pay for housing?
- When is the best time to buy a house?
Buying a house is more complicated than just having the money for the down payment and monthly mortgage payments. Owning a house requires a tremendous commitment of funds, time, and attention. For some people, owning is not the best or only way to have a comfortable and safe living environment. Consider the pros and cons of renting listed below.
7. Who should continue to rent?
For some families, renting is the best solution. You may not be ready economically or emotionally to own. Some people consider renting a temporary way to live until they are more settled in job or family.
Renting an apartment or a house is like borrowing a home from someone else - it’s never really yours. In contrast, owning a home allows you to experience the pride of ownership, and the satisfaction of knowing you’re making a smart investment.
Buying doesn’t necessarily cost more than renting. And since a home is something that can increase in value over time, the sooner you become a homeowner, the sooner you can benefit.
When you add it all up, there’s really no better time to purchase your first home than right now
8. Advantage of Renting?
- Moving is easy (you can move within a short time).
- Amenities may be available (pool, tennis courts, social/activity rooms, laundry facilities, security for apartment renters).
- You have few responsibilities.
Maintenance and repairs are handled by the owner.
- There is no large down payment, only a security deposit.
- Some monthly expenditures (rent) are fixed making it easier to budget.
- There is no chance for financial loss of investment (beyond the amount of the lease).
- There is a sense of security from nearby neighbors.
- You can look over the community and move again.
- Moving-in costs are low.
- It is easier if you travel a lot, either for your job or pleasure.
9. Disadvantages of Renting?
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It offers no special tax deductions.
- There are no potential gains from the rising value of property.
- You usually get less space for the money.
- Changes cannot be made or are limited in scope.
- Rent rises with inflation except where there are many rental units available.
- You will probably have restrictions on noise level, pet ownership, or children.
10. Advantage of Buying/Owning a Home?
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A house is a form of forced savings (you make payments on an asset that may grow in value--many families would never accumulate assets otherwise).
- Homeowners often have a sense of pride and status in home and community.
- A homeowner may have a better credit rating (equity in a home improves the credit status of the family and can be used as collateral for an emergency loan).
- Mortgage payments contribute to an investment, particularly if the property is located where it increases in value over a period of years.
- Monthly payments remain relatively constant for many years (fixed loan), thus housing costs are stabilized because present and future costs can be estimated and planned.
- Interest on mortgage monies and taxes are legitimate income tax deductions.
- The house may increase in value, resulting in a significant gain in net worth.
- Ownership may contribute to security, especially in retirement years when income normally decreases.
- A homeowner can borrow against his/her equity, as the value of the house increases against what is owed on it.
- More space may be available for family members and their activities.
- A homeowner has freedom to make improvements and changes to the house and surroundings as desired (although a development or association may have restrictions and prohibitions).
- Home ownership can contribute to the general well-being and sense of "roots" of the family, especially for children.
- Homeowners generally are concerned about community affairs and how they may affect their property.
11. Disadvantage of Buying/Owning a Home?
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A substantial down payment may be needed.
- A house requires a big commitment in time, emotions, and money.
- The house may decrease in value if the neighborhood deteriorates or changes quickly; thus resale may be a problem.
- The homeowner may have limited money for other purchases or activities since his or her money is tied up in the house.
- Maintenance and repairs may be costly and take a great deal of time and effort.
- Owning a house requires money for insurance, and a loss of the house as a result of a natural disaster (tornado, flood, hurricane) could mean a serious financial burden.
- Some families have difficulty budgeting for maintenance, repairs, home improvements, and/or home ownership dues.
- Real property taxes could increase dramatically.
- Total housing costs may take too much of the budget, resulting in potential cash flow problems.
- The family may have higher moving-in costs as new items may have to be purchased for a house.
- The family may feel less secure if neighbors are not near.
- The house may be too large after children leave home.
- Security may be a problem if you travel a lot.
Unexpected loss of income due to job termination or unemployment may limit money available for home ownership costs.
12. Why you should define Your Values?
Sit down and list the factors about a house that are important to you. If you are married and have children, ask every family member who is old enough to make their own list. Then compare the lists. They won't be the same and you will probably have to talk with each other about the differences and compromise to make a single list for the family. This list should include answers to questions such as the following:
- What is a home to us (a refueling station, the center of family life)?
- Which is more important to us, the house or its furnishings?
- How do the activities we are involved in affect the kind of house we need?
- How far are we willing to commute to work, school, church, shopping?
- How important is privacy to us?
- Can a privacy fence give enough privacy, or do we want more open space in the country?
- How much time and what skills do we have to devote to maintenance and upkeep?
- What community services are available (garbage and trash pick up)?
- What stage of the life cycle is our family in and are we likely to need more space or less in the next five years? Ten years?
13. Consider the Neighborhood?
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Location such as Mississauga, Toronto, Brampton, Milton, Oakville, Burlington, Markham, Scarborough, Woodbridge?
- Appearance?
- Current residents (similar or dissimilar occupational and social interests)?
- Whether area is appreciating or depreciating in value?
- Safety and security?
14. Consider the accessibility?
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Convenience to work, shopping areas, school, and church.
- Good roads and streets.
- Available public transportation.
For more information on accessible housing, see Removing Barriers in a Home, or Furnishing a User-Friendly Home, or Evaluate Before Buying, Building, or Remodeling.
15. Consider the Community Facilities?
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Police and fire stations.
- Health and sanitation services.
- Schools and churches/place to worship.
- Recreational facilities, such as parks.
16. Consider the Family Values?
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Appearance.
- Size versus amenities.
- Special features your family needs.
17. Consider the Costs?
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Within your price range.
- Cost of money (both interest rate and terms of mortgage).
- Tax benefits.
Energy costs.
18. What is good for you “The Apartment or House Itself”?
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Space, arrangement, and condition?
- Bedrooms and bathrooms (enough space and privacy)?
- Kitchen and work area (well planned and step saving, adequate work and storage areas)?
- Dining and living areas (adequate for family entertaining and resting)?
- Storage (adequate and well placed in each area of the house)?
- Room sizes, shapes, and wall areas to permit use of furnishings and equipment on hand or planned?
- Interior and exterior finishes (types acceptable, condition good, easy maintenance)?
- Heating and lighting (adequate and efficient systems)?
- Outdoor space (patio, deck, lawn, garden space, outdoor storage)?
- Condo / House / Semi Detached / Townhouse etc.
19. How Much House Can You Afford?
Buying a house commits your family to a long-term debt and requires time and energy. North American consumers spend from 21 to 54 percent of family income on housing. How much each family spends on housing depends on many factors.
Three basic considerations that can help a family determine how much house they can afford are:
- The amount of take-home pay the family can reasonably expect.
- The family's living costs and other debt payments.
- The total amount of housing expenses, including taxes, insurance, energy, furnishings, maintenance, and mortgage payments.
Because of rising prices and increased housing-related expenses, the old rule-of-thumb on how much to pay for a house no longer apply. Lenders usually follow two basic guidelines in determining how large a mortgage to grant:
- Principal, interest, taxes, and insurance (PITI) should not exceed 25 to 32 percent of gross income.
- PITI plus other long-term debt should not exceed 33 to 41 percent of gross income. (Long-term debt includes car and installment loans, alimony, child support, and charge card balances that will take a set length of time to repay.)
To learn what your total housing costs might be, use this formula:
- P + I + T + I = Monthly Cost
- Principal + Interest + Taxes + Insurance = Monthly Cost
For example, a homeowner may have:
- $750 + $75 + $50 + $25 = $900
- Principal + Interest + Taxes + Insurance = Monthly Cost
NOTE: Insurance costs may include the homeowner’s policy required by most lenders and also mortgage default and term life. Ask prospective lenders what they include in insurance costs.
Also keep in mind utility and maintenance costs.
When shopping for an existing house ask to see the utility bills for the last 12 months. Learn as much as you can about the condition of the house to see if repairs will need to be made.
With a new house, monthly utility and maintenance costs can only be estimated based on similar houses in the neighborhood or those of a similar size, style, and construction.
20. Are You Ready for Home Ownership?
When trying to decide if you are ready to buy a house, ask yourself the following questions:
- Am I sure I want to buy a house?
- Do I have steady income and stable employment?
- Do I plan to remain in the area for the next several years?
- Have I created a budget so that I know how much more I can realistically afford to pay for housing?
- Do I have an established credit record or can I build a nontraditional credit history with records of payments to previous landlords and utility companies? If so, is my credit profile favorable? Do I pay bills on time or before the due date?
- Do I have enough money saved for the down payment (if required) and closing costs? If not, can I enlist the aid of relatives or government or non-profit agencies that might give or loan me money at a low interest rate?
- Have I been "pre-qualified" by a lender so that I know how much I can borrow based on my income and existing debt?
- Is my existing debt low enough that it will not limit my ability to qualify for a mortgage? If not, can I pay down my debt before I attempt to buy a house?
- Have I looked into the benefits and requirements of the numerous financing options that are now available to low- and moderate-income home buyers?
If you can answer YES to all or most of these questions, you may be well on your way to owning your own home.
