Owning vs Renting vs Lease Option vs Mortgages

The best way to have a home of any kind is to own it outright, free and clear from any mortgage or loan of any kind.That is not easy but It is possible and there are many people who do own their own homes in such a way, yet it certainly is a small percentage of the overall population. Owning a more normal home in terms of type of home, but mortgage and debt free has certain advantages over some types of more unconventional homes. For starters you don’t have to worry about some city official telling you to move your tiny home and or threatening to fine you or take other legal actions against you.

Unfortunately the more normal fixed foundation homes often cost much more than unconventional homes do. The single biggest hurdle is the total cost to buy a typical existing home or have one built. There are many unconventional extreme options, which I write about and discuss extensively – they are not for everybody. Even then those who do use the most extreme of the extreme will only do so temporarily and as long as necessary for them to move up another step to something they find more appealing for a longer term. This is a step method toward being able to afford something more typical without having to resort to a mortgage or a loan of some kind to do it. For those who want a less extreme option immediately choices become more limited because of the high costs of more typical homes.

So what is the best choice for you? In the end it is best to consider all the pros and cons of what various options that are available have to offer and make an informed decision that works best for you personally.

Renting a home has very limited benefits vs owning a home. Perhaps the main one is flexibility, the ability to have a comfortable roof overhead yet still be able to leave the area and not have to worry about continuing to make mortgage payments on a home several states away while you try to sell it. Selling a home usually takes time and is never an absolute certainty that it can be done at a particular price in a specific time frame. So renting is particularly beneficial for those who have short term job locations and then transfer to another area, or people who are actively looking at leaving for what ever reason in the near future.

Renting on a month to month basis or short term time frame, usually a year or less, only obligates you for that period of time vs 15 or 30 years on a mortgage. Even then most leases can be terminated early with little more than the forfeiture of the security deposit and can usually be done with mutual consent of the tennant and lessor – though not always. There are legal repercussions and other negative potential issues if you choose to just break a lease and walk away, so it’s best to negotiate your way out if possible – or at least make sure you understand what the risks are to you otherwise before you take a specific action.

The amount people pay for rent in comparison to what the amount people in the same area typically pay for mortgage payments varies depending on what part of the country you are in and the particulars of the real estate market there at the same time. Sometimes rent is lower, other times its about the same on a month to month basis. Keep in mind though that homeowners have responsibilities for maintenance and repairs and other liabilities that renters do not typically have. If you own it you have all the maintenance and repair responsibilities and the costs that come with them. You either have to do it or call someone and pay them to do it for you. If you rent then you just have to pick up the phone and call the owner or property manager and they will take care of it for you. Of course how well and how fast they do varies greatly from one to another, but they do have repercussions themselves if they fail to honor the lease terms or and comply with applicable requirements. Always read and understand your lease BEFORE you sign it.

I have had hundreds of people sign leases over many years, some as an investor renting out my own properties and  many as a property manager for a relatively large real estate firm. I can tell you that very few people read the lease at all – most just want to know where to sign. I used to routinely escort them to a conference room, give them their lease agreement and offer them a few minutes alone to read it on their own, almost none ever did. Most just wanted to sign it as fast as they could, pay their deposit and first months rent so they could get the keys and start moving in. Most leases, especially those used by real estate companies in general, are more or less standard lease agreements. Even so – do you personally know what a standard lease agreement is and what conditions and obligations are contained in it specifically? If you do then you are most unusual. Even then there are variations and  specific clauses and sections can be changed that significantly affect what you can and cant do, what you are obligated for and the penalties and how they come into play should you violate your lease agreement. Do as you wish – but I suggest you never sign a lease without reading it and fully understanding it.

Lease options or sometimes called rent with option agreements are lease agreements that have provisions that can lead to you eventually owning the home you are renting by meeting the terms of the agreement. Usually that involves paying an option fee of some amount which may be 5 to 7 percent of the purchase price typically or even more. This fee is almost always a nonrefundable fee that goes to the property owner who will keep every dollar of it should you fail to complete your requirements or simply change your mind and decide not to buy the property.

So normally you would agree to buy the property for a set price, in a set time frame if you choose to exercise your option, and in exchange for that right you are paying the owner an option fee. Then you may be required to pay a deposit, and first month rent after which you will pay monthly rent of a set amount and term until some future date in accordance with your contract. Usually this will be for some period of years ranging from one to three years, though longer and shorter times are possible depending on the specific agreement.

Sometimes a portion of your rent payments will be credited to the purchase price when you complete the purchase. Other times it isn’t and it all goes to the seller as regular rent. When it comes time to buy you will normally have to come up with the full balance of the purchase price.  Most people do this by obtaining a mortgage – though some come up with the funds from some other source such as an inheritance, retirement lump sum or bonus, or a settlement, proceeds from selling other assets etc. Typically though that is not the case.

Most often the buyer will either use a mortgage if he or she completes the purchase at all. Otherwise they will have simply paid rent and a sum of money as an option fee and taken on other obligations in exchange for having an option to buy that they never exercised for some reason or another. Possibly because they were unsuccessful at coming up with the money needed to buy it with by the end of the contract term, or circumstances may have changed in their lives and they decide not to complete the purchase. They may have also found out other things about the property, the neighbors or the neighborhood in general that they don’t like and simply decide not to buy the particular house, and instead seek something more to their liking.

Mortgages. This is typically how most home buyers buy homes these days whether new or existing homes. Town homes, condos, single family houses and other types of property are all purchased using a mortgage. It is so common now that owning a home in any other way makes one an anomaly and even at least a bit extreme.  Its certainly not normal to own a normal home without financing it through the use of a mortgage.

The main benefit of a mortgage is that it makes buying a home relatively easy. The main disadvantage of a mortgage is that it is a debt. Not just a debt – but a huge debt, and a debt against your home – the very place you keep yourself, your family and your possession safe and protected from the elements and from all manner of other threats. That is significant – because should you become unable to cover this debt you will lose that shelter. Many have and many more will. Most of them thought it could never happen to them either – and they were all wrong about that. It can happen to anyone with a mortgage with just a few situational circumstance changes.

When people buy a home with a mortgage more often than not they focus on the monthly payment instead of on the total loan amount. That makes it very easy to buy much more house than is needed and to incur massive debt amounts in the process. You can find statistics to prove or disprove almost anything depending on your desired outcome – if you look hard enough someone somewhere has probably created a chart or graph that will show you what ever you want to see. I can tell you I personally have known many people who were spending more than half of their total family net income just to make a mortgage payment -and some even more than that. Regardless of what the percentage is usually it is the largest single debt most people have. For many it is a life long debt.

Theoretically a mortgage will eventually be paid off at the end of what ever the term is, whether its is fifteen or even thirty years, or what ever creative term the mortgage lenders come up with. yet in most cases in reality – they will NEVER be paid off. That is because people seldom live in one home that long anymore, and even those few percentage wise who do often refinance their homes to pull cash out for improvements or to start a business or any number of things. Some do eventually pay their mortgages off but it is a rarity when it happens.

For those who choose to use a mortgage yet who want to be out from under it as quickly as possible they should strongly consider a fifteen year fixed rate mortgage and put as much as possible down on the house. Even then choose a modest house as low in price as is possibly acceptable. Then put every extra dollar they can scrape up each month toward the principle. Those who do that can be rid of their mortgages and have them paid off very quickly.

Everyone is entitled to their own opinions. I certainly have mine. My opinion of a mortgage is that when you have a mortgage you are NOT a homeowner at all despite the illusion put forth by lenders and parroted by main stream society – but rather your are buying a home. The lender is the true homeowner so long as the mortgage or other loan of any type exists. Semantics are not as important so long as the underlying idea and the actual situation is clearly and accurately understood. Even I refer to home buyers with mortgages as “home owners”, though they really aren’t.

So should you buy a home and use a mortgage to get it or should you rent with an option, or maybe just rent and not worry about trying to buy a home at all? That all depends on you. There are certainly extreme options than can be used to have shelter with neither – and then save up enough money as you use a step by step method to eventually own a home that is considered more normal in type than a tiny house, camper, yurt, converted bus, van or other extreme little human habitats are. Some people are willing to go extreme to get where they want to be. Others would never seriously even consider such a thing.

There are moderate ways to live better and reduce expenses while more slowly eliminating some debt to what ever level you desire. Of course there is the completely normal way too – in debt up to your eyeballs for everything. In the end everyone has to decide what they want, what they are comfortable with, and whether or not to choose one path over another at any given time in life. There is no perfect path. All paths have their challenges and rewards and are all compromises in some way or another.

I just want you to know there are choices.