Man working with cutout of house in front
Old Glory Bank
By Old Glory Bank

Published: July 8, 2024

Housing

Next, we’ll examine a critical aspect of maintaining physical and financial health: Housing. The decisions surrounding housing are some of the most important financial decisions you will make, so it’s important to understand them thoroughly.

Renting vs. Buying

Let’s first look at your two major options for housing.

  1. Renting
    1. Pros: More flexibility for movement, lower upfront costs, and no maintenance responsibilities.
    2. Cons: Doesn’t build equity or assets, leaves you at risk of potential rent increases, and less overall stability.
  2. Buying
    1. Pros: Builds equity, leaves room for potential home value appreciation, and provides more stability and control over living space.
    2. Cons: Higher upfront costs (down payments and closing costs), maintenance responsibilities, less flexibility to move.

Either option can be better for different people, it simply depends on your circumstances. Let’s say you’re a little younger and haven’t settled down with a family yet. It might be beneficial to rent, as renting will give you the flexibility needed to move forward with whatever the next stage of life brings you. On the other hand, let’s say you have a steady job and are ready to raise a family; it might be worth buying a home to provide stability and assured housing while raising kids. Next, let’s look at what you’ll be paying for.

Housing Costs

Housing is frequently the single largest expense for a household. It includes both rent/mortgage payments and property taxes, insurance, maintenance, and utilities. Here’s some more information about these key components

This is the most obvious cost. If you’re renting a house, you’ll have to pay a monthly fee to your landlord. If you own the home, you’ll instead be paying a monthly mortgage payment to the lender who helped you finance the house; this will include interest.

Homeowners must pay property taxes, which are a percentage of the property’s assessed value. These taxes fund local infrastructure like schools, roads, and emergency services.

While homeowners' insurance is technically not required, it is incredibly valuable to protect your finances if your home is damaged or you experience property loss. It is worth noting that renters will also need insurance to protect their personal property, though it won’t be covering the home itself.

This includes regular maintenance, which means everything from lawn care to cleaning to termites. Renters will typically not be responsible for maintenance on their property.

This includes the services you use on a daily basis, like electricity, water, gas, and possibly trash collection and sewer services.


Tips for Managing Costs

As always, integrate housing expenses into your budget. To maintain a healthy financial balance, aim to spend no more than 30% of your gross income on housing expenses.

If you’re aiming to buy a home, start planning early. You’ll need to save up for a down payment, so be sure to work that into your savings plan. Larger down payments help reduce mortgage payments and avoid private mortgage insurance (PMI), which would eat further into recurring expenses.

Regardless of whether you’re renting or buying, you should always be comparing multiple options to see which best fits your financial situation. Also, never forget to negotiate rent or purchase prices. Every seller is different, but it is very unlikely that you will have to pay the exact asking price.

If you already own a home and find yourself in a better financial situation, consider refinancing your mortgage. This includes getting a new mortgage to completely pay off your old mortgage. This is especially beneficial if interest rates are lower than when you first made the deal, because you will be able to negotiate a loan with more favorable terms.

Remember that utilities can be a significant chunk of household expenses. It can be very beneficial to invest in more energy-efficient appliances or home improvements that will save you money in utility bills over time.

Conclusion

That’s all the basics of housing out of the way. Housing involves many big decisions that can be very overwhelming. Remember to take it slow and start from big to small. Your first decision is typically going to be where you want to live. Then, use the rest of your life circumstances to determine whether you’re better off renting or buying. Then, evaluate how different options fit your preferred lifestyle and budget. Most importantly, be careful when finally signing the deal. If something feels off or wrong, be sure to seek council to make sure you’re making a fair deal.

 
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