Rent vs. Own: Which is the Winner Now?

Rent vs. Own: Which is the Winner Now?

In 2011, we wrote a blog post weighing the pros and cons of renting versus owning a home. In our assessment, we considered variables such as the economy and job stability, interest rates, home values, the rental market and the mortgage interest rate deduction. At that time, there was no clear winner between renting and owning. Now that two years have passed, have any of these variables changed? Is there a clear winner between renting and buying today?

Some variables have changed since our 2011 analysis. The U.S. economy and job market has recovered considerably, although slowly, which is good news if you’re considering buying a home. If you’re going to take on the responsibility of home ownership, you need to be able to cover expenses like real estate tax and maintenance in the long term, so the state of the economy and your job stability is important.

Housing market: Prices continue to rise

House values have also changed over the past two years. In 2011, home values were extremely low. Foreclosures and short sales meant previously unaffordable homes were selling at much reduced prices. Today, home prices are rising and fewer deals are available. U.S home prices jumped almost 11% in March 2013 as compared to March 2012 according to a Financial Post article. This may put some homes out of reach of potential buyers. It may also encourage potential buyers to get into the market before (and if!) housing prices climb higher.

At the same time, the rental market is also changing. Private equity investors, such as Blackstone Group LP and Colony Capital LLC, have been buying up low-priced homes and putting them on the rental market. In some areas, more rental homes are available than before, and increased availability may help keep rents low – a benefit if you’re considering renting.

Interest rates still very low

But not everything has changed since 2011. Interest rates remain low, and (as before) analysts continue to speculate on how long they’ll stay that way. If you’re considering buying a house, it makes sense to get in while rates are low.

As in 2011, the mortgage interest deduction also remains in place – for now. Discussions about eliminating the deduction continue. House Ways and Means Committee Chairman Dave Camp has been looking for ways to eliminate tax loopholes and, apparently, the mortgage interest deduction is under consideration. At the same time, several powerful groups are in favor of keeping the deduction, such as the real estate lobby. It’s anyone’s guess as to the final outcome.

My personal advice

Too many people buy a home based on the thinking that it’s a “smart investment.” A home is a tangible asset that requires time, money, and care; often times, your “investment” can feel like a big hole in the ground where you’re pouring money. If you’re looking for return on investment, my advice is to invest your money in stocks and bonds instead.

If you want to buy a home, buy it because living there will make you and your family happy for a long time. When you have this mentality – versus a “cash register” one – the market ups and downs won’t bother you. You’ll view your house as your home – one that sustains you and your family.

When you approach the home buying decision process this way, the decision to rent also becomes easier. In the U.S., we have an unspoken stigma about renting. If you rent – and you may have very good reasons for doing so – it’s assumed you can’t afford to buy a home. Due to this societal pressure, many people are driven into making a huge financial purchase for the simple reason they don’t want to tell people they rent. If they purchase a home they really can’t afford, they fall into financial trouble.

If you rent, and you want to keep renting because of the benefits it offers you, ignore this pressure. As I’ve indicated in this article, renting or owning a home both have their pros and cons. Whether you should rent or own comes down to your personal situation and what’s best for you.

If you’re considering a home purchase, however, and need a loan, consider Meridian Home Mortgage. We’re here to help you.

Using Your 401k to Finance a Mortgage Down Payment

Using Your 401k to Finance a Mortgage Down Payment

401k to Finance Your Mortgage Down Payment

Are you having trouble figuring out how you will finance the down payment for your home? Have you been looking for down payment assistance? Some people are reaching into their 401k retirement accounts as means for down payment assistance. It is important to understand the different options and what they entail. Rules and regulations may vary depending on your company’s plan.

Hardship Withdrawals

Typically 401ks are only available for withdrawal if you quit your job, retire, or become disabled; however, some companies allow “hardship withdrawals” for those with immediate financial need. This usually includes use for the down payment or purchase of your primary residence.

This option does have its drawbacks. First, you will be charged taxes and penalties on the amount withdrawn, which are often required to be repaid within a year of the transaction. First time home buyers are exempt from a 10% penalty, as are those over 59 1/2 years old. Second, the money withdrawn will no longer be earning interest which will affect the long-term growth of your account. When retirement rolls around, you could be sorry. Lastly, you will be repaying a portion of the loan with after-tax dollars, meaning the additional interest going into the account will be taxed twice (once at the time of contribution and again when funds are withdrawn at retirement).


Another option is to borrow against your 401k to use towards your down payment. Many companies allow employees to borrow as much as 50% of the current balance, but a minimum loan of $10,000 is generally required. The funds you receive are not taxable and the prime rate plus 1% interest you pay on the loan will go back into your account. And because you are essentially borrowing money from yourself, no credit check is required.

There are risks involved with borrowing against your 401k as a source of down payment assistance. If you leave your job or lose your job, the loan must be repaid in full within a specified time period (usually 60-90 days). If the loan is not repaid within that time frame it is considered a withdrawal and taxes and penalty fees will be applied . Additionally, 401k loans usually have short term paybacks with high monthly payments.

Before dipping into your 401k savings for a down payment on your home, consider all of the advantages and disadvantages. In certain situations, using funds from your 401k for down payment assistance may be the most ideal option. But if you’re not careful, the decision to borrow may have negative consequences.

Have You Exhausted All Other Sources of Cash?

There are alternatives to fund your down payment. You may qualify for federal, state, or local down payment assistance. See which down payment assistance programs are offered in your area. In addition, you may want to research loans that offer no money down. An FHA mortgage loan allows you to borrow up to 97% of the home value with the remaining 3% paid for by gifts. VA loans and USDA loans offer no money down for those who qualify.