Should You Buy or Rent? The Answer May Surprise You!

Whether renting is better than buying depends on many factors, particularly how quickly house prices and rents increase.

The number one factor, however, is the length of time you stay in your home. [We’ll get to that in a minute.]

Buying Versus Renting

Obviously, buying a house isn’t strictly a financial decision. Finding a house in a neighborhood you love is very important as well.

Moreover, you should check on the sales price trends of homes in that neighborhood. If it looks like the prices are falling in that area, then you’re probably better off renting a house or even an apartment.

And don’t forget: when buy, you’ll still incur costs that you wouldn’t encounter as a renter—from the cost of painting walls to replacing dying appliances.

Here’s a quick breakdown of the pros and cons of renting and buying.

Renting Buying
Pros Cons Pros Cons
Mobility: You can relocate easily for a new job or when housing circumstances change. No equity. Tax-break: deduct mortgage interest and property taxes Property tax, upkeep and possible annual subdivision fee.
Can invest money elsewhere (stock market) Yearly rent increase could outpace inflation. Potential tax-free capital gain Monthly mortgage costs.
No maintenance: leaky roof, broken refrigerator, flooded basement, subdivision fees. Emotional satisfaction Less flexibility should you want to move for a new job or to be near family.

Now, before you buy, estimate how much those all out-of-pocket costs will be. After all, even though you are in your own home, you don’t want to live from check to check.

Down Payment Options

If you do decide to buy, it’s in your best interest to avoid private mortgage insurance by putting down at least 20% of the purchase price.

Twenty percent sounds like a lot of money. Where are you going to get it? Fortunately, Congress has come up with some options.

You can withdraw up to $10,000 from your IRA as a lifetime credit, penalty-free (but not tax-free) for the purchase of a first home. Combined, you and your spouse can withdraw up to $20,000.

It also means you can ask your parents to make a first-time home buyers gift to you by raiding their own IRAs. Again, this will be penalty-free.

Surprisingly, you can actually tap into the first-time home-buyer exemption more than once. But you must not own a home during the previous two years. However, no matter what, each person is limited to $10,000over a lifetime.

If you don’t have an IRA, you could also drain your 401(k). But this is a rotten idea. If you’re not 59 ½ years of age or older, you’ll pay some pretty stiff penalties for pulling money out of your account.

Furthermore, you’ll cripple your retirement savings, since most plans won’t allow you to contribute to your plan for at least a year following a withdrawal. You don’t want to lose out on your company’s match, tax-deferred contributions and the interest earnings on the money you’ve withdrawn.

Borrowing from a 401(k) isn’t much better.

If and when you leave the company, there’s a chance your loan will be called immediately. Besides, those dollars will also miss out on any market gains and tax-deferred growth when it’s out of your 401(k).

Bottom line: Save up your twenty percent down payment. Which brings us to our final answer.

According to the New York Times buy-rent calculator,

If you stay in your home for 6 years, buying is better. It will cost you $745 less than renting, an average savings of $124 each year.

In other words, if you’re NOT going to stay in your home longer than six years, rent. It’ll be easier on your bottom line.

Payday Loans in Georgia: Caveat emptor

Until 2004, Georgia citizens were able to take advantage of payday lending. Payday loans in Georgia were especially popular amongst residents with poor credit in need of fast cash. Payday lending offices are generally not selective about who they loan money to; in most cases, proof of employment and a bank account is enough to secure a small loan. What’s more, people can get the money they need the same day they apply for it. This lending arrangement would seem ideal to just about anyone on the outside, but the reality is that the interest rate on the average payday loan is often as much as 600 percent.

The Payday Lending Act of 2004

The Payday Lending Act went into effect in 2004, and it promptly put an end to all payday loans in Georgia. According to the act, lending offices in the state may be charged with felony and racketeering for charging borrowers excessive interest on small loans, typically $3,000 and under. Penalties for violating the act include fines of more than $20,000 and possibly even jail time. It’s no surprise that most payday lending offices in Georgia closed up shop as a result of the act. Georgia is now one of 19 states in the country that no longer allows payday lending.

Borrowers Nationwide Should Steer Clear of Payday Loans

When people are desperate for money, they often fail to see the big picture. Payday loans appear attractive initially to people with bad credit because they need money and have no other means of obtaining it. Borrowing $100 and being told the amount to pay back is $125 doesn’t seem like a big deal, but then there’s another $20 to $25 in interest tacked onto the balance for every $100 borrowed. There’s no denying this ultimately adds up to a lot of money. People who get into the payday loan cycle frequently end up in more severe financial shape than they were to start with when they only needed a few hundred bucks to pay a light bill or something equally minor. Payday lending isn’t worth it, and the fact that Georgia and other states have now banned the practice confirms this.

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