Buying vs. renting a home: Which is right for your wallet and lifestyle?

posted on

November 15, 2025

For generations, home ownership was considered an essential component of the American dream. However, in recent years, financially savvy people are questioning whether it’s economically rational to rent, buy a starter home or to wait and buy their dream house.

The housing market tends to shift a little each year, which changes the factors regarding housing choices. There are arguments both for buying and for renting, depending on your individual circumstances. To help you evaluate your own situation, consider these five important questions as you make the buy-or-rent decision.

How long do you plan to stay where you are?

Your intended length of stay has a huge impact on whether it makes more sense to rent or buy. There are many costs associated with the process of buying a home outside of the cost to purchase it–brokers’ and appraisal fees, title insurance, mortgage origination fees, and closing costs. The longer you remain in a house, the more time you have to spread out the costs. Selling the home within a few years may not offset the fees due to there not being enough appreciation.

Are you throwing money away on rent?

The primary argument in favor of purchasing a home is that you build equity in a valuable asset that can boost your long-term net worth. In contrast to this, paying rent each month seems like spending rather than saving. Rent may actually be less costly after factoring in all of the expenses associated with ownership.

Property taxes

Insurance

Maintenance (it’s recommended to budget at least 1% of the value of your home each year to cover routine maintenance)

Unforeseen expenses such as replacing a heating and cooling system or roof

Focusing solely on the monthly mortgage payment versus monthly rent may be overlooking additional costs of ownership.

What tax savings can I expect with home ownership?

Traditionally, the costs of homeownership have been offset by tax savings generated by the mortgage interest deduction. Recent changes to the tax laws have lowered the cap on the amount of mortgage interest that can be deducted. Interest paid on home equity loans or lines of credit is still deductible provided that the money is used for improvement to the home. Before you make the decision to purchase, we recommend doing your homework on how current tax laws will affect you by reaching out to a certified tax professional.

Do house prices always go up?

The real estate collapse in 2007 showed us that home prices can suffer major declines. Before buying a home, consider how your finances would be affected if your home’s value increased slowly or not at all. Understand that buying a house with the intent of it serving as an investment can be risky. Do your research. Though houses do generally go up in value, they don’t always. It can help to think of your home as a place to live not just an investment.

Which option will have a greater impact on my overall wealth?

Make an accurate comparison between the financial impact of renting and buying by factoring in the complete costs of homeownership–not just mortgage versus rent payments–as well as how owning would affect your taxes. A rent vs. buy comparison can be done using the price-to-rent ratio, which is calculated by dividing the home value by the annual rent amount. If this number is less than 20, buying may be a better option for you. Conversely, if it is greater than 20, renting might be best. You can find online rent vs. buy calculators that let you plug in your own numbers to see the difference that buying or renting has on your long-term finances.

There are benefits and drawbacks to each option. Both are major financial and lifestyle decisions and there isn’t a right answer for everyone. Before signing a mortgage or lease, weigh the benefits and drawbacks of each choice.

Benefits of owning a home

Security and freedom are two reasons to purchase a home of your own. When you are the mortgage holder, you have the right to make changes to the property. There are financial benefits to home ownership as well. Most homes can increase in value over time, which means that your investment appreciates.

In the first few years of making your mortgage payment, you’ll pay interest charges, which may be tax deductible. The longer you live in the home, the more principal you will be to pay off. As the balance of your loan declines, the equity in the home climbs. Owning a home also benefits your credit. Lenders perceive you as a good credit risk because your house can serve as security against future loans.

Drawbacks of owning a home

Buying a house is one of the largest investments many people will make in their lifetime. Along with the cost of the home, you are also responsible for the monthly payment of principal, interest, taxes, and insurance (what is referred to as “PITI”). It takes quite a bit of pre-purchase cash before you even step foot in the door. Because of the upfront expenses and monthly outlay, homeownership is not for everyone.

Benefits of renting

A sense of freedom is also associated with renting, but in a different sense. With a renting scenario, the only commitment you have is the security deposit, first and last month’s rent, and monthly rent. The landlord is responsible for most of the property’s upkeep, which greatly reduces expenses.

Drawbacks of renting

An absence of equity is the primary problem with renting a property versus owning it. The money you pay each month builds the owner’s (aka “landlord”) net worth instead of yours. Most rental properties have rules you have to follow and the agreement you sign binds you to any restrictions, such as no pets or a specific number of people who are allowed to live in the home.

Attitudes have shifted in terms of homeownership and the best advice we can give you is to assess your financial circumstances and lifestyle needs to decide if renting or buying is for you.

This article is for informational purposes only and is not intended to provide tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for advice. All loans subject to approval. Actual rate and terms may vary depending on individual’s credit history and other factors. Membership required. SRP is federally insured by NCUA. Equal Housing Lender. NMLS ID #612441.

Article Credit: BALANCE 

Saving for Homeownership

posted on

October 15, 2025

For most people, buying a home is both an exciting and challenging venture—it is the quintessential American dream. However, because of the high costs involved, saving for home purchase takes commitment, research, and sometimes sacrifice. This fact sheet will provide general information on the costs involved and the types of expenditures you will need to save for in order to buy your first home.

The down payment

The down payment will be the most significant outlay of your pre-purchase costs. The rule used to be that you needed to put down 20% of the purchase price, and you would obtain an 80% mortgage. Today, homebuyers can buy a home with as little as three to five percent down. If you do put less than 20% down, you will probably have to purchase private mortgage insurance, which will cost you between .5% to 1% of the loan amount until your equity reaches the full 20%. Keep in mind that the more you put down, the less your mortgage payment will be.

Earnest money

Earnest money is a cash deposit you make when you submit your offer, which proves to the seller that you are serious about wanting to buy the home. Your real estate broker will deposit the money into an escrow account, and if your offer is accepted, it will be applied towards the down payment. If the offer is rejected, it will be returned to you. Typically, the earnest money deposit will be about two percent of the price of the home.

Closing costs

Closing costs include all fees required to execute the sale transaction, such as attorney fees, title insurance, appraisals, points, and tax escrows. Typically, these fees are paid up front. The average cost is three to five percent of the purchase price.

Post-purchase reserve funds

You may also need to prove to the lender that you have some reserve funds to protect against potential cash flow problems. This not only is assurance for the mortgage holder, but is also for your peace of mind. Post-purchase reserve funds should be at least two to three months’ worth of housing payments. This money is recommended to be in a savings account and accessible without penalties for early withdrawal (though money in a retirement account can also be counted toward the reserve requirement).

Cost breakdown

So how much money will you need to come up with to buy a home? The actual figure depends on many factors. You may have to save more or less for the same home depending on current interest rates, whether you get a fixed or an adjustable rate mortgage, repayment terms, and your credit rating. Other expenditures you may want to save for are landscaping, immediate repairs, redecorating, furnishings (particularly if you are moving into a much larger space), and moving expenses.

Example for a $300,000 Property:

20% Down payment $60,000
3.5% Closing costs $10,500
3 Month reserve fund* $5,625
Total estimated pre-purchase costs $76,125

* $1,875 per month for Principal, Interest, Taxes and Insurance. Example based on a 30-year fixed mortgage, 6% interest, $2,436 annual property tax and $2,796 annual homeowners insurance.

Educate yourself

Obtaining high quality, objective home ownership education is essential for first time homebuyers.

The Department of Housing and Urban Development (HUD) can put you in touch with the nearest housing counseling professional in your area by calling (800) 569-4287. You will learn how to develop a reasonable savings goal and time frame, how large a mortgage you qualify for, and the approximate price range in which you should be looking. You will also be given feedback about your credit score, and what you need to do in order to make improvements. Suggestions may include increasing income, paying down debt, closing unused accounts, paying collection accounts, correcting errors, and making timely payments for a specific time period.

Review your spending plan

Analyze your current financial position by reviewing all assets and liabilities. Do not overlook any source of funds. Include all checking and savings accounts, CDs, stocks, mutual funds and savings bonds. Retirement funds such as a 401k or an IRA can be counted toward the reserve requirement. You may even be able to borrow against your 401k plan and use the proceeds toward the down payment (check with your human resources department for details and restrictions).

Prepare a cash flow spending plan to determine how much you can realistically save each month. You may choose to sacrifice some expenses or delay the purchase of non-essential items in order to meet your monthly goal.

Save effectively

Some good techniques for effective saving include:

Set up direct deposit with your employer, where a portion of your income is siphoned directly to a savings account. What you don’t see, you don’t miss.

Track your spending. Awareness leads to diligence and thrift.

Get the family involved. It is easier to save when everyone is excited and working towards the same goal.

Tape a photo of the home or type of home you are saving for on the refrigerator or computer. It will be a constant reminder of your objective.

Ultimately, saving for a home is a choice. If you find your savings plan to be unfeasible, consider extending the time frame.

Conversely, if you really want to stick with the original time frame, you may want to buy a home that has a smaller purchase price—and buy “up” later. The idea is not to abandon the dream, but to reassess, reorganize, and reengage!

This article is for informational purposes only and is not intended to provide tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for advice. The payment example displayed above is intended for educational purposes only and does not depict SRP’s current offerings. Membership required. SRP is federally insured by NCUA.

Article Credit: BALANCE 

"Three Reasons You Should Always Pay More Than The Minimum" next to a hand using a mock credit card on a card reader.

Three Reasons Why You Should Always Pay More Than the Minimum

posted on

April 15, 2025

Credit cards are a valuable financial tool for both individuals and businesses–but they come at a price.

You get purchasing power on the spot, and the creditor only requires you to pay off a small amount of the total every month, i.e., the minimum amount due. However, it’s important to remember that the minimum is calculated in the best interest of the creditor, which puts you at a disadvantage.

Here are some important reasons why you should always pay more than the minimum due on your credit card.

1) Save money

When you only cover the minimum every month, you end up paying more in interest. The minimum payment exists to ensure that interest fees are covered, with only a small amount going toward the actual balance.

For example, suppose you have a $3,000 balance with a 14 percent APR (Annual Percentage Rate). Your minimum payment would be around $65. By the time you pay it off, you will have paid an additional $1,332 in interest.

On the other hand, if you were to pay $100 every month instead of $65, you would only pay $713 in interest.

2) Get to debt-free faster

The more you pay, the quicker you’ll be debt-free. Using the same example, it would take 67 months to pay off the original $3,000 balance, along with all that extra interest. That’s 5.5 years!

Paying $100 per month instead would clear the debt out in approximately 38 months, which is just over three years. Of course, this is provided you’re not adding additional charges to the card and that your APR remains at 14 percent.

3) Raise your credit score

The ratio of your balances to your credit limits is called “credit utilization.” This ratio actually accounts for 30 percent of your entire credit score.

For example, a credit limit of $2,000 with a balance of $500 would mean that you have a credit utilization of 25 percent. A lower ratio is better because it shows that you’re using only a small amount of the total credit that has been extended to you.

If you’re only paying the minimum, your balance remains high relative to your total credit limit. This will cost you some points on your score. Naturally, this also means that when you begin making higher payments that quickly bring down your balance, you’ll likely see an increase in your credit score to reflect this change.

So what’s the solution to avoiding the minimum payment trap? Whenever possible, pay off your balances in full every month.

APR = Annual Percentage Rate. This article is for informational purposes only and is not intended to provide tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for advice. All loans subject to approval and rate may vary depending on individual's credit history and other factors. All Credit Union loan programs, rates, terms and conditions are subject to change at any time without notice. Membership required. SRP is federally insured by NCUA.

Article Credit: BALANCE

Three Mortgages Every Home Buyer Should Know

posted on

April 1, 2025

Because of the high cost of most real estate, very few people can purchase a home with savings alone.

Therefore, if you are like the vast majority of people, you will be borrowing money from a financial institution to purchase the property you want. Called mortgages, these loan products can be quite complicated. Knowing the basics of how mortgages work can help guide you to the loan that is most appropriate for you.

Mortgage Terms

How long is it going to take you to repay the loan? That depends on the term of your mortgage. A term is the number of years that you agree to pay back the amount you borrow.

The term also affects the cost of your mortgage payments. Shorter repayment periods mean higher monthly payments but less interest you pay over the life of the loan, while longer terms will give you lower payments but will cost more over the long run. The traditional mortgage term is 30 years, but they have ranged from ten to 40 years.

Types of Mortgages

There are several types of mortgages available, with the most common being fixed-rate, adjustable, and interest-only.

Fixed-rate mortgages come with an interest rate that remains constant over the life of the loan. 30-year mortgages are the most common, but you may also choose a 20-year, 15-year, and even 10-year fixed-rate mortgage. In certain high-cost areas some mortgage lenders were even offering 40 year-loans. Though the mortgage interest rates tend to be higher than for other loan types, the rate is fixed and your payment won’t change. This stability makes them the most secure type of mortgage for buyers.

Adjustable-rate mortgages (ARMs) have a period of fixed interest, but after that the payment changes with whatever index the loan is based on. The period of fixed interest may be three, five, or seven years. With a 5/1 (the first number stands for the number of years in the initial fixed period, while the second indicates how often the new rate will adjust) ARM, for example, the initial interest rate remains fixed for the first five years, and then adjusts annually for the remaining term.

There are several types of caps that may apply to an ARM: an overall cap limits how much the interest rate can increase over the life of the loan; a periodic cap limits the amount the interest can increase from one period of adjustment to the next; and a payment cap limits the amount the monthly payment can increase at each adjustment.

While ARMs are less secure than fixed-rate mortgages, they tend to have lower initial rates and therefore lower monthly payments. They can be a good option if money is tight in the early years, as long as you are confident you can meet future interest and payment increases.

Interest-only mortgages are loans that allow you to pay just interest for between three and ten years. Once that period is over, the payment rises to include both principal and interest. While qualification can be easier and the monthly costs can be lower than other mortgage types, they can be a gamble. A downturn in housing prices could mean that you end up owing more than you own, and an interest rate hike could put the payments beyond your reach.

Certainly there are benefits and drawbacks to each mortgage type. Long before you borrow, consider each option carefully to know which is most appropriate for your situation. With so much money at stake, making the best mortgage decision is important.

This article is for informational purposes only. All loans subject to approval. Actual rate and terms may vary depending on individual’s credit history and other factors. Membership required. SRP is federally insured by NCUA. Equal Housing Lender. NMLS ID #612441.

Article Credit: BALANCE

Tag: mortgage