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Exploring the dilemma between renting or owning a house

Posted by Jim Emerson

Aug 30, 2022 10:49:13 AM

Renting vs. Buying

Many of our clients tell us during their mortgage application process that they spent significant time being uncertain about ─sometimes even agonizing over what would be the right decision: owning or renting. Since we are in the business of helping our clients own a house at AMI Lenders, we thought it might be helpful to put down in black and white what we know to be relevant factors to ponder while navigating this rent vs. own decision process.

What you should consider when pondering whether to rent or own

The rent vs. own decision happens not just once; it can happen several times as you grow and your personal and financial situation evolves. You might have found the correct city to live in and settle down, or you have saved enough for a down payment. Or, you might want to move to a better school district for your kids or think you are done dealing with landlords. Also, you may want to know that the next time you move, it's because you choose to do so, not because you are asked to vacate the premises. Or luckily, you have found a property you love at a price that is hard to pass up.

We believe the following factors are the most relevant inputs when considering renting vs. owning.

  • First and foremost to your evaluation are “the” / “your” local real estate market characteristics. In high-priced real estate markets (such as San Francisco or New York City), it might be beyond your means to own, so rent will be your only option, whereas, in other parts of the country, you could afford to own if you so desired. That said, apart from property prices, when evaluating location, you will want to consider factors such as neighborhood safety, school district quality, drive time to work, close to shopping and recreational activities, and availability of public transportation.
  • The time you plan to stay in the city/neighborhood is important. The rule of thumb is to plan to stay put at least 5 to 7 years when you purchase, although some say at least three years. Why? Because when you purchase, there are "closing costs" involved which do not go into your home equity, but when you rent, you do not incur said expenses.
  • Cash flow analysis of owning vs. renting.
    • It might be cheaper to rent (“easier on the cash flow”) in the short term, but…
    • All the money paid in rent “disappears” into your landlord’s bank account, whereas mortgage payments include the cash you put towards owning something (saving for yourself and your future).
    • When analyzing owning cash flows, you must add other expenses such as property taxes, homeowner’s insurance, property maintenance, and repairs to the monthly mortgage payments.

  • Emotional/intangible factors that impact a decision of rent vs. owning will include:
    • Financial predictability. A fixed-rate mortgage has fixed payments over the next 30 years. Rent payments will most likely increase in the long run because of inflation adjustments, or if the neighborhood faces increasing demand because it is more likable than others, or it becomes more fashionable, etc. Some people can deal with the uncertainty, but most prefer to know that payments will stay at a given level in the long term.
    • Freedom to renovate. When renovating, if you own a house, the improvements you spend on will accrue to your benefit, whereas when renting, the landlord benefits in the long run.
    • Growing home equity. Every time you meet a mortgage payment, you are saving through your home equity.
    • Flexibility (renters are “freer” to move). If you prefer to constantly move because your profession requires you to do so or if you are interested in advancing your career, renting affords you the flexibility that homeownership somewhat limits.
    • Peace of mind through ownership.


Use an online calculator if you want to know the comparison in dollars and cents.

A precise computation is not as straightforward as you might think; that's why there are several online "rent vs. buy” calculators that you can use to estimate cash outflows in the rent and buy scenarios. Most calculators will require that you have the following financial information.

  • The purchase price for the house under consideration.
  • Down payment. What percentage of the purchase price do you have?
  • Mortgage term. In years. Mortgages can vary between 10 and 30 years in duration.
  • Cost of renting something similar. You are expected to compare properties with similar characteristics.
  • Time planning to live there. In years. It impacts the time to “absorb” the closing costs. The shorter the period, the large the amount that closing costs have an impact on the “monthly costs”.
  • Your tax bracket. Mortgage interest is tax-deductible, and, in most instances, rent payments are not tax-deductible.

Make sure you understand the assumptions behind the calculations done by the online calculator, as they will help you think about your decision.


We cannot tell you outright which decision is best for you, but we can try to help you finance a house if you have decided to buy one. If you have decided to purchase a home in the Houston area, consult with AMI Lenders. We are one of Houston's fastest closers and could become your financial ally. We fund our loans and can move as fast as the law allows. Borrowers in Houston will also have a hard time finding lower rates for hard money or private loans than we offer. We want our customers to succeed and take advantage of the financial opportunities offered by home ownership. Visit our website today and fill out an application for a loan backed by a mortgage.

Topics: Hard Money Loans, mortgage loans, houston, AMI Lenders


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