Still renting? It adds up

By Kristen Elliott on 8/1/2022

Why renting may not be the cheaper alternative after all
It’s an age-old quandary that millions of Americans confront every year: Should I rent or should I buy a home? Admittedly, it’s not always easy to decide.

The choice on whether to own a home or to rent one is subject to much debate, and people on both sides of the argument have no shortage of reasons why their decision is the right one. But if we’re being honest, we have to assume that the primary driver is financial, and that those who propose renting a house, condominium or apartment think that renting is simply the cheaper way to go—at least for now. Are they right?

Renting vs. owning: Reality check
If you’re just starting out in life as an adult, then sure, renting makes a ton of sense. After all, you need time to build up credit, save money for a deposit and get serious about making those monthly mortgage payments. But for everyone else, the case can be made that renting a home doesn’t add up in the short or the long term.

In today’s economy you might be surprised to learn that owning a home can save you money right now and over time. Let’s take a look at some of the key reasons why you might want to hold off signing that rental lease and look into buying a home in 2022—and beyond.

The zero-equity truth of renting
When looking around for a place to live, it’s easy to be swayed by the lure of simply plunking down a modest security deposit and first month’s rent. Problem solved, right? There are no interest rates to worry about, the transaction is not particularly complex or time-consuming and there’s really nothing that will leave you in suspense beyond a routine credit and employment check. It’s straightforward and simple. To many home hunters, it has appeal.

But here’s the thing: While you may be “saving” money upfront by foregoing a serious down payment and side-stepping a monthly mortgage, you aren’t doing anything to build equity. And without building equity, you’re just treading water as a renter.

Buying a home and building equity
In simple terms equity is the difference between the fair value of your home and what you owe on the outstanding balance of all your liens—or what you owe on your mortgage. If your house costs $300,000 and you put 20% down ($60,000) and have been able to pay back $20,000 thus far, your equity is $80,000.

But of course, equity isn’t strictly about the sticker price of your home; as we said above, it’s about how much it’s worth in the marketplace today. That means a professional will need to evaluate your home and issue an appraisal. And as we know, a home’s worth can rise and fall depending on the state of the marketplace.

This affects your equity, too. But there’s no option for equity when you’re a renter—unless you’re talking about building up your landlord’s equity. Yes, your monthly rental payments help increase your landlord’s equity but do nothing to establish your own.

As you can see below, if you’re a renter this is how much you may be paying toward your landlord’s mortgage.

ENT / MO. ($) 3 YRS. ($) 10 YRS. ($) 15 YRS. ($) 30 YRS. ($)
1,800 64,800 216,000 324,000   648,000
2,000 72,000 240,000 360,000 720,000
2,200 79,200 264,000 396,000 792,000
2,400 86,400 288,000 432,000 864,000
2,600 93,600 312,000 468,000 936,000
2,800 100,800 336,000 504,000 1,008,000
3,000 108,000 360,000 540,000 1,080,000
3,200 115,200 384,000 576,000 1,152,000
3,400 122,400 408,000 612,000 1,224,000
3,600 129,600 432,000 648,000 1,296,000
3,800 136,800 456,000 684,000 1,368,000
4,000 144,000 480,000 720,000 1,440,000

Beyond equity: Other advantages of owning a home vs. renting
Equity isn’t the only reason why owning a home may be advantageous to you. There are a number of compelling reasons to consider taking the plunge of homeownership rather than continuing to rent, including:

Potential tax benefits accorded to homeowners
You aren’t captive to a landlord who can suddenly raise your rent
You can decorate/renovate your home any way you choose
Potential tax benefits accorded to homeowners
There are some very interesting tax-related reasons to purchase a home. While it’s recommended that you always check with irs.gov and your specific state for the most up-to-date information, we’ve highlighted some of the more prominent tax breaks below:

Property taxes: You can deduct real estate taxes paid on your home up to $10,000 at the federal level ($5,000 if married filing separately). Some states may allow you to deduct the full amount.
Mortgage interest: Homeowners are allowed to deduct home mortgage interest on the first $750,000 ($1M if the mortgage was secured prior to December 14, 2017).
Deductions on home improvements: Major home improvement repairs can be used to decrease gains you may assume when you sell your house—that’s down the road. In the shorter term, should those repairs be financed through a HELOC, a home refinance or other loan, you may be eligible for deductions. Additional federal tax deductions also exist for energy efficiency modifications to your home. Your state may offer similar tax breaks.
Capital gains: If you meet certain federal requirements, the first $250,000 of profit ($500,000 if married and filing jointly) is exempt from capital gains tax when you sell your home. This means the vast majority of homeowners get to reap the full financial benefits of having the price of the home appreciate over time.
Income from rent: While it may not be the first thing you’re concerned with when you buy a new home for you and your family, at some point you might find yourself renting out your home. If that’s the case, you can claim your real estate taxes and mortgage interest as a deduction. You can also deduct your home insurance and any money spent on repairs.
You aren’t captive to a landlord who can suddenly raise your rent
Besides not enjoying the tax-related or equity-building benefits of homeownership, there’s another harsh reality that renters must face: They have zero control over price increases in their rent.

When you sign a lease with your landlord, you’re only locking in the monthly rent on your home for a limited period of time (typically 12 months). After that, should you choose to renew your lease, your landlord can suddenly decide to raise the rent without warning—sometimes quite dramatically. If you haven’t been looking around for alternative accommodations, you might be stuck at the last minute signing a lease for another year at a price point beyond your comfort level. And as bad as that sounds, the next year could result in yet another rent hike. That’s the unpredictable nature of renting, and another reason why homeownership puts you in the driver’s seat: greater control over your financial well-being.

You can decorate/renovate your home any way you choose
Exercising the full privileges of homeownership means having the right to determine how your home looks—inside and out. That’s a beautiful thing, and it’s not something extended to renters.

When you rent a house or an apartment you’re essentially a long-term visitor. In a sense, you’re a glorified guest in your own home, never fully rewarded the right to redo the kitchen, add a skylight or construct an outdoor patio—all things homeowners regularly undertake every year with great panache.

Even seemingly uncontroversial activities such as painting your kitchen or family room a color other than white (or equivalent) can sometimes sound alarms with strict landlords. On top of that, there are a host of hidden fees that can inflate the cost of renting. These aren’t discussed a lot but they’re there in the fine print and they can sour the renting experience very quickly.

All in all, renters need to think long and hard whether answering to a landlord is impinging on their lifestyle and shrinking their dreams. While the financial component will always loom large, you also need to think about the opportunity cost of staying too long in an apartment or neighborhood that no longer suits who you’ve become and where you want to go. For many Americans, homeownership is where dreams take seed.

You may not think you need to remodel that kitchen today, but wouldn’t it be nice to know you could if you wanted to? That’s homeownership; it unlocks choices well beyond equity or intergenerational wealth. It allows you to participate in the American dream on your terms.

*Guaranteed Rate Affinity does not provide tax advice. The consumer should always consult a tax advisor for information regarding the deductibility of interest and other charges in their particular situation.

It’s important to learn more about the neighborhood HOA, such as annual dues, community amenities, and restrictions when looking to buy a new home. The goal of the HOA is to help maintain home values and the overall aesthetics of a neighborhood.
AMY POE
OCT 25, 2017
When looking for a house, many buyers tend to take into account costs associated with owning a home such as insurance, utilities, and taxes. One thing buyers may not think to consider is whether the house is in a neighborhood with an HOA, what the dues are, and how the association is run. Many buyers may be aware of association dues and regulations in multi-family developments such as condos or townhomes. But, it’s becoming a new normal to find HOAs in developments with single-family homes.

What is an HOA?

There are different definitions out there for a Homeowners’ Association and many operate differently from one another. A Homeowners’ Association, or HOA, is an association that works to maintain and oversee the common areas of a neighborhood or property complex. It’s fairly common to find them in neighborhoods that offer amenities such as a community pool, gated access, a playground, tennis courts, etc. The HOA is typically a volunteer-based board made up of homeowners living in the neighborhood. Many HOAs have committees that coordinate neighborhood events, review proposed changes homeowners wish to make to their property, enforce the covenants, and more.

Get to Know the Rules

The covenants, conditions, and restrictions are different for every HOA. Some rules commonly seen in HOAs are in regard to the overall appearance and aesthetics of the neighborhood, such as the appearances of houses and lawn maintenance. Some also have restrictions regarding street parking or where residents can park their boats and RVs. Others may deal more with coordinating neighborhood crime watches and events.

When considering a house, it’s a good idea to ask for a copy of the HOA covenants, conditions, and restrictions to get a better idea of what is allowed and not allowed in the neighborhood. It’s becoming more common for HOAs to have a website or social media page, which is a great place to learn more about the community. For example, some mandate there can be no cars parked in the yard of any house in the neighborhood. If a homeowner wants to paint the house a new color, change the landscaping, or add on to the property, the owner has to submit the proposed changes to the HOA for review and approval. The committee will review the proposed changes to ensure they fall in line with the covenants of the neighborhood. While these may seem rather burdensome or trivial, the HOA was designed to help maintain home values and the overall aesthetics of a neighborhood.

How are HOAs Funded?

Many HOAs require annual dues. Those dues will vary based upon the size of the neighborhood and amenities. Dues are used for a number of things including maintenance of common spaces such as neighborhood entrances, playgrounds, pools, etc. In gated neighborhoods, many of the items that would normally be maintained by the city or parish must be maintained by the HOA. These items may include roads, sidewalks, and street lighting to name a few. Some HOAs will hire a property management company to oversee the collection of dues and coordinate maintenance issues.

Another thing to consider is whether the house is located in a new development. There may not be many amenities or common spaces to maintain as the neighborhood is being developed, so dues may be minimal. The developer may cover some of the associated costs while the neighborhood is still being developed. The true cost associated with running the HOA and maintaining the neighborhood may not fully come to light until the neighborhood is near completion and the developer turns the HOA over to the new residential board.

It’s important to pay the dues on time. Depending on the bylaws, late fees and interest could be tacked on to the bill and the HOA could place a lien on the property if the dues are not paid. The HOA could also foreclose on the property for nonpayment of dues.

After the Closing

Contacting the HOA should be a priority on the Post Move-in List as it is important to provide contact information to the HOA. It’s also a great time to get more information regarding upcoming neighborhood events or other ways to get involved. The HOA cannot operate without residents who are willing to give of their time.

It’s also a great idea to attend neighborhood events such as an ice cream social, an Independence Day parade, Halloween trick-or-treating, and a Christmas party. These events can serve as a great way to meet neighbors and build relationships.

It’s important to remember that the volunteers who serve on the HOA are your neighbors and friends. Like you, they want what’s best for the community. Every homeowner benefits from a well-cared for neighborhood.

By Audrey Ference
Aug 8, 2022

Buying a home often entails also buying various types of insurance to protect your property, and one type you might need to get is called title insurance.

When you buy a home, you “take title” to it and establish legal ownership. A title insurance policy protects you against the possibility that someone else might have a claim on your home. In essence, it ensures that a homeowner and their lender will be okay in the event that the seller or previous owners didn’t have absolute ownership of the house. (It sounds crazy, but sometimes it turns out that the homeowner is not the only one with rights to a home!)

If you need a mortgage to buy real estate, your lender will likely require you to buy a title policy from a title insurance company. Although it’s a cost home buyers incur, getting a title policy from a title insurance company is critical to establishing peace of mind.
Let’s examine the ins and outs of title insurance, why home buyers need it, how much you can expect to pay, and how you can save on a title insurance policy.

What is title insurance?
Holding a title insurance policy means you and your mortgage lender are protected against any financial loss or title issues due to liens, disputes between prior owners over wills, clerical problems in courthouse documents, or fraudulent claims against the property or forged signatures.

A title search will be performed by your title or settlement company to uncover any issues with your title that could give you legal troubles down the line.

The title company then insures your claim to the property’s title. If anything is missed during the search or there are lawsuits questioning your legal ownership of the property after closing, your title insurance policy will cover the costs of resolving the problem.

Why a title search is required with a mortgage
When getting a mortgage to buy real estate, you’ll find that most lenders will typically require that you get a title search before you close the deal with your escrow company. Basically this would mean you’ll have to hire a title company to search local records on your property. Some of the issues they’re looking for include the following:

Disputes between prior owners over wills: If your property was inherited and then sold by the heirs, there could be other heirs contesting the will and claiming ownership of your property.
Liens for unpaid property taxes.
Liens for contractors who worked on the home but were never paid.
Clerical problems in courthouse documents: Believe it or not, a simple typo can lead to title claim problems.
Fraudulent claims against the property or forged signatures: For example, if a group of heirs can’t get a holdout to agree to sell the home, it’s possible that someone will forge a signature on a quitclaim deed.
While most homeowners will never need to use their title insurance, its existence offers protection against a potentially aggravating—and very expensive—financial loss.
Lender’s title insurance vs. owner’s title insurance
There are two types of title insurance: lender’s and owner’s. Almost every lender will require you to pay for a lender’s title insurance policy. This protects the lender—not you—from incurring any costs if a title dispute pops up after closing.

Owner’s title insurance is usually optional, but it’s highly recommended. Without it, you’ll be left footing the bill for all the costs of resolving a title claim, which could be thousands or even hundreds of thousands of dollars. Even though it can feel like you’re hemorrhaging cash when you’re closing on a house, a title insurance policy is one of those things that can save you money in the long run.

“When you consider the benefits of title insurance and some of the unique aspects of title insurance relative to other kinds of insurance, it is clear why it’s risky and ill-advised to purchase real estate without a title insurance policy,” says Brian Tormey of TitleVest in New York City.

You can purchase basic or enhanced owner’s title insurance, with the enhanced insurance policy offering more coverage for things like mechanic’s liens or boundary disputes.

While your title insurance covers you for things such as mistakes in the legal description of your property or human error, be aware that it will have some exclusions—particularly in cases where violations of building codes occur after you bought your home.

How much does title insurance cost?
Wondering what the cost of title insurance is? The average cost of title insurance is around $1,000 per policy, but that amount varies widely from state to state and depends on the price of your home.

Title insurance premiums can vary from a couple of hundred dollars to a couple of thousand dollars. Some factors that can affect the cost of your premium include the title search, examination, and expected cost of any title defects.

“In general, each policy price is based on the purchase amount of the home or the total amount of the loan,” explains Tormey. “Title insurance is a highly regulated industry, so title insurance policy types and costs will vary from state to state. Each state’s Department of Insurance can provide information on the pricing regulations in their state.”

In some states such as Texas and Florida, title insurance premiums are fixed by the government, so you will pay exactly the same amount no matter what. Other states such as California and New Mexico have unfixed premiums, which means that buyers can shop around.

Unlike other types of insurance, a title insurance policy is paid with a single premium during escrow while closing for your mortgage. If you’re buying a real estate resale or refinancing, you may be eligible for a “reissue” rate, which could offer a substantial discount off the regular premium—because the title policy is already in effect, and the title research has already been completed.

How to save on title insurance costs
In some states, title insurance premiums are the same no matter who you work with, but in the majority of states, you can save money by shopping around. Even in states with highly regulated title insurance industries, there are ways to save. Here are some ways to lower your title insurance costs.

Shop around. If premiums are unregulated in your state, find the company that offers the best deals. Just make sure you’re not sacrificing customer service to save a few dollars: Resolving a title issue can be stressful, and you want a company that will help you through the process. Read reviews and talk to your real estate agent for recommendations.
Bundle. Some companies will offer a discount if you bundle your lender’s and owner’s policies.
Negotiate add-ons. Even if the premium itself is fixed, there are almost always other fees built into your total premium price. See if there is any wiggle room with those items. They may be optional, or the insurance company might be open to discounting them.
Negotiate with the seller. Closing costs are always open to negotiation, and picking up the tab for the title insurance might be worth it to a seller who’s highly motivated to close the deal. But be wary of using this tactic in a competitive market.