Title page image

Media and software compilation copyright © 2016 by John Wiley & Sons, Inc. All rights reserved.

Home Buying Kit For Dummies,® 6th Edition

Cheat Sheet

Top 20 Hints for Home Buyers

  1. Buy a home that comfortably allows you to accomplish your other financial goals. Understand how the proposed home purchase fits into and affects your existing financial situation and goals, especially saving for retirement.
  2. Get your personal finances in order before you buy. You should make your saving, investment, and insurance plans before you buy.
  3. Mortgage lenders and real estate agents can’t tell you how much you can afford to borrow. They can only tell you the maximum that you’re eligible to borrow.
  4. The best time to think about selling your house is before you buy it. Be sure that the home you buy has features other buyers will find desirable, or you won’t be able to get a good price when you sell it.
  5. Real estate is a good long-term investment. However, home values go through up periods as well as down periods. If you’re a homeowner during most of your adult life, your home should enjoy a healthy appreciation of value.
  6. Consider renting if you think you’ll soon need to move. Given all the costs associated with buying and then selling a home, if you don’t expect to hold on to your home for at least three (and preferably five) years, you could very well lose money.
  7. Have the courage to be a contrarian. The best time to buy is usually at the bottom of a real estate cycle when fewer people think it’s a good time to buy. Compare the monthly costs of renting a home to buying it to see whether buying offers a good value.
  8. You can easily save thousands of dollars by shopping around for a good mortgage. Money is a commodity, just like toasters and toilet paper.
  9. Choose a mortgage that fits your needs and ability to accept risk. Don’t take an adjustable-rate mortgage unless you can afford the maximum possible monthly payment and the risk of fluctuating payments.
  10. What you don’t know is usually what gets you into trouble. Real estate is a team sport. Put the right players on your team and you greatly reduce the likelihood of problems with your purchase.
  11. Invest the time to find the best possible real estate agent that you can. A patient, knowledgeable agent can add value to your home-buying transaction. A mediocre or lousy agent can be a liability.
  12. Remember that real estate agents, mortgage brokers, and other players only get paid if you buy, and they generally get paid more the more you spend on a home. To protect yourself against these conflicts of interest, get your financial house in order before you start working with these players.
  13. Buying a home is an emotional experience for most people. The better job you do of controlling your emotions, the more likely you are to control the transaction and get a good deal.
  14. Beware of fake sellers trying to peddle overpriced houses. Learn how to spot counterfeit sellers before you waste your precious time and money on them.
  15. “What’s it worth?” is the most important question to answer when buying a home. Examine sales of comparable homes (a good agent can assist you) to answer this question.
  16. There are no absolutes in real estate negotiation. Smart buyers realize that there are times to make a low-ball offer and times to make your first offer your best offer. And remember that everything is negotiable.
  17. If the deal you’re getting on a home, mortgage, or any other aspect of a home purchase seems too good to be true, it probably is. Find out why the home or mortgage is so cheap or suffer the consequences later.
  18. Never buy a pig in a poke. Don’t try to save money by skipping inspections. Have the home thoroughly inspected before you buy it. If in doubt, reinspect.
  19. Buy the most comprehensive homeowners insurance policy you can. Make sure that you have coverage for catastrophic risks, such as earthquakes or floods, that may occur in your area.
  20. Don’t let unexpected closing costs sabotage you. Ensure that you have enough cash to buy the home by estimating in advance all the costs you must pay at the time of closing, including moving expenses, insurance premiums, loan fees, and property taxes.

Mortgage Payment Calculator*

To calculate your monthly mortgage payment, simply multiply the relevant number from the table below by the size of your mortgage expressed in (divided by) thousands of dollars. For example, on a 30-year mortgage of $125,000 at 7¾ percent, you multiply 125 by 7.17 (from the table) to come up with an $896.25 monthly payment.

Interest Rate (%)

Term of Mortgage

15 years

30 years






































































































































































*Warning: Mortgage payments are only a portion of the costs of owning a home. See Chapters 2 and 3 to figure your total costs and fit them into your personal finances.


Copyright © 2016 Eric Tyson and Ray Brown. All rights reserved. Item 1796-5.
For more information about John Wiley & Sons, Inc., call 1-877-762-2974.

Wiley, the Wiley logo, For Dummies, the Dummies Man logo and all related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates. All other trademarks are property of their respective owners.

Praise for Previous Editions of Home Buying For Dummies

“It is absolutely practical. They cover the basics in straightforward language and go into enough detail to make them the only books you’ll need.”

— Eric Antonow, president and CEO, Katabat Corp.

“As a first-time home buyer, I found this book to be a quick read and immensely helpful in knowing what to ask my agent, what to look for on walk-throughs, what to expect in terms of offers and counteroffers, as well as the entire timeline and process from open house to moving in. This book really is invaluable to anyone purchasing a home, even if you’re not a first-time home buyer.”

— Travis A. Wise, San Jose, CA

“Because I bought this book, I was able to carry on intelligent conversations with my agent and lender when I recently purchased a home. Even better, I felt prepared for those conversations and much more in control of the situation than I would have had I not read this book. Thanks to the authors for doing such a great job!”

— Jeff C. Benson, Lake Zurich, IL

“I never bought real estate in my life. I never shopped for a mortgage in my life. But after reading this book, I am extremely well prepared when I call them and when they walk through the door to meet with me.”

— Ben Milano, Lindenhurst, NY

“If you are considering buying a home, don’t fail to read this excellent new book. The book is full of profitable ‘insider tips’ which most real estate writers either don’t know or are afraid to reveal. The advice is so good I wish I had written it … on my scale of 1 to 10, this outstanding book rates a 12.”

— Robert J. Bruss, Tribune Media Services

“ … Home Buying For Dummies immediately earned a prominent spot on my reference bookshelf … takes a holistic approach to home buying.”

— Broderick Perkins, San Jose Mercury News

“ … invaluable information, especially for the first-time home buyer …”

— Carol Nuckols, Fort Worth Star-Telegram

Here’s what critics have said about Eric Tyson and his previous national bestselling personal finance guides:

Personal Finance For Dummies is the perfect book for people who feel guilty about inadequately managing their money but are intimidated by all of the publications out there. It’s a painless way to learn how to take control. My college-aged daughters even enjoyed reading it!”

— Karen Tofte, producer, National Public Radio’s Sound Money

“Among my favorite financial guides are … Eric Tyson’s Personal Finance For Dummies.

— Jonathan Clements, The Wall Street Journal

“Smart advice for dummies … skip the tomes … and buy Personal Finance For Dummies, which rewards your candor with advice and comfort.”

— Temma Ehrenfeld, Newsweek

“Eric Tyson is doing something important — namely, helping people at all income levels to take control of their financial futures. This book is a natural outgrowth of Tyson’s vision that he has nurtured for years. Like Henry Ford, he wants to make something that was previously accessible only to the wealthy accessible to middle-income Americans.”

— James C. Collins, co-author of the national bestseller Built to Last; lecturer, Stanford Graduate School of Business

“Eric Tyson … seems the perfect writer for a … For Dummies book. He doesn’t tell you what to do or consider doing without explaining the why’s and how’s — and the booby traps to avoid — in plain English… . It will lead you through the thickets of your own finances as painlessly as I can imagine.”

— Clarence Peterson, Chicago Tribune

Personal Finance For Dummies is, by far, the best book I have read on financial planning. It is a simplified volume of information that provides tremendous insight and guidance into the world of investing and other money issues.”

— Althea Thompson, producer, PBS Nightly Business Report

More Best-Selling For Dummies Titles by Eric Tyson

Investing For Dummies

The Wall Street Journal bestseller that walks you through how to build wealth in stocks, bonds, mutual funds, real estate, small business, and other investment vehicles.

Personal Finance For Dummies

Discover the best way to establish and achieve your financial goals, reduce your spending and taxes, and make wise personal financial decisions. Wall Street Journal bestseller with more than 1.5 million copies sold in all editions, and winner of the Benjamin Franklin business book award.

House Selling For Dummies

Want to stand out to home buyers in today’s crowded market? America’s #1 bestselling real estate authors, Eric Tyson and Ray Brown, have revised their classic guide to save your time and money as you prepare to sell your property. They’ll show you when to put your house on the market, the pros and cons of FSBO, and the best way to utilize the Internet, from online listings to digital photos.

Mortgages For Dummies

Eric Tyson and Ray Brown give you the proven solutions for obtaining a mortgage, whether you want to buy your first home, refinance, or tap into your equity. You get the latest on adjustable-rate mortgages, how to find the best lender, how to avoid fiscal pitfalls and foreclosure, and much more.

Real Estate Investing For Dummies

Real estate is a proven wealth-building investment, but many people don’t know how to go about making and managing rental property investments. Real estate and property management experts Robert Griswold and Eric Tyson cover the gamut of property investment options, strategies, and techniques.

Small Business For Dummies

Take control of your future and makes the leap from employee to entrepreneur with this enterprising guide. From drafting a business plan to managing costs, you’ll profit from Eric Tyson and Jim Schell’s expert advice and real-world examples that cover every aspect of building your own business.

Home Buying Kit For Dummies®

Visit to view this book's cheat sheet.


Welcome to Home Buying Kit For Dummies, 6th Edition!

For about the cost of a couple of movie tickets, you can quickly and easily discover how to save thousands — perhaps even tens of thousands — of dollars the next time you buy a home.

How can we make such a claim? Simple. Each of us has spent decades personally advising thousands of people like you about home purchases and other important financial decisions. We’ve seen how ignorance of basic concepts and practices translates into money-draining mistakes. And we know that many of these mistakes are both needless and avoidable.

remember No one is born knowing how to buy a home. Everyone who’d like to buy a home must learn how to do it. Unfortunately, too many people get a crash course in the school of hard knocks — and learn by making costly mistakes at their own expense.

We know you’re not a dummy. You’ve already demonstrated an interest in discovering more about home buying by selecting this book, which can help you make smart moves and avoid financial land mines.

In the event that you’re still wondering whether to buy this book, consider that buying a home may well be the largest purchase that you ever make. Buying a home can send shock waves through your personal finances and may even cause a sleepless night or two. Purchasing a home is a major financial step and a life event for most people. It certainly was for us when we bought our first homes. You owe it to yourself to do things right.

About This Book: The Eric Tyson/Ray Brown Difference

We know that many home buying books are competing for your attention. Here are several other compelling reasons why this is the best book for you:

Icons Used in This Book

Sprinkled throughout this book are cute little icons to help reinforce and draw attention to key points or to flag stuff that you can skip.

tip This bull’s-eye notes key strategies that can improve your real estate deal and, in some cases, save you lots of moola. Think of these as helpful little paternalistic hints we would whisper in your ear if we were close enough to do so!

warning Numerous land mines await novice as well as experienced home buyers. This explosive symbol marks those mines, and then we tell you how to sidestep them.

investigate Occasionally, we suggest that you do more research or homework. Don’t worry: We tell you exactly what you need to do.

beware Unfortunately, as is the case in all parts of the business world, some people and companies are more interested in short-term profits than in meeting your needs and concerns. We warn you how, when, and where you may be fleeced, and where appropriate, we show you how to de-fleece yourself!

remember “If I’ve told you once, I’ve told you a thousand times… .” Remember good old Mom and Dad? From time to time, we tell you something quite important and perhaps repeat ourselves. Just so you don’t forget the point, this icon serves as a little nag to bring back those childhood memories.

technicalstuff Some of you are curious and have time to spare. Others are busy and just want to know the essentials. This geeky icon points out tidbits and information that you don’t really have to know, but understanding this stuff can make you more self-confident and proud!

checkitout Want to calculate your monthly expenses? Or have a handy-dandy list available when you interview Realtors and home inspectors? Wanna see what your bank might include on a mortgage application? These along with lots of other important stuff can be found online at

Beyond the Book

In addition to the material in the print or e-book you’re reading right now, this product also comes with some access-anywhere goodies on the web. Check out the free Cheat Sheet at for 20 home buying tips and a monthly mortgage payment calculator.

We’ve also included some additional information online at These Extras articles address the difference between short-term and long-term interest rates when it comes to choosing a mortgage; why you should save receipts for major home improvements; and common misperceptions when it comes to investing in real estate.

Finally, go online to to access the “kit” part of this book. You’ll find a variety of useful forms, including many of the lists and applications that we show in the book. You can print out the application forms and fill them in, just to ensure you have all the information you need. And you can also print out the lists of questions for potential Realtors and property inspectors so you’re prepared when interviewing them.

Here’s a list of what you’ll find at

Table 1-1

Figuring future rent

Table 2-1

Your spending, now and after purchasing a home

Table 3-1

Monthly mortgage payment calculator

Chapter 3

Estimated homeownership expenses

Chapter 3

1040 Schedule A

Chapter 3

Closing costs checklist

Chapter 7

A list of the documents that mortgage lenders ask you to fork over

Chapter 7

Request for Copy of Tax Return (Form 4506)

Chapter 7

Tax Information Authorization (Form 8821)

Chapter 7

Release of Authorization (Figure 7-3) grants permission to your mortgage lender or broker to verify and document the financial facts of your life

Chapter 7

Good faith estimate form

Chapter 7

The Uniform Residential Loan Application, Parts I through X

Chapter 7

Right to receive appraisal form

Chapter 9

Agent activity list

Chapter 9

Agent references

Chapter 9

Interviewing agents

Chapter 12

Sample counteroffer form

Chapter 13

Interviewing property inspectors

Chapter 14

Settlement Statement (HUD-1 Form)

Appendix A

California Association of Realtors’ Purchase Contract

Appendix B

Short-Sale Addendum

Appendix B

Short-Sale Addendum and Advisory

Appendix C

Sample Inspection Report

Appendix C

Buyer’s Inspection Advisoryov

Where to Go from Here

Odds are you’re not quite ready to bolt over to the nearest bank and take out a mortgage — and we don’t suggest that you blindly call the first Realtor you find online. It’s up to you where you go from here, but if you’re just beginning to think about buying your first home, we recommend that you read this book straight through, cover to cover, to maximize your home buying savvy. But the A-to-Z approach isn’t necessary — if you feel pretty confident in your knowledge of certain areas, pick other ones that you’re most interested in by either skimming this book’s table of contents or by relying on the well-crafted index at the back of the book.

Part I

Getting Started with Buying a Home


webextra Visit for free access to great Dummies content online.

In this part …

check.png Compare the pros and cons as well as the economics of renting your home versus owning your home.

check.png Get your personal finances in order before buying.

check.png Determine how much you can afford to spend on a home.

check.png Understand the drivers of home prices in your local market.

Chapter 1

Deciding Whether to Buy

In This Chapter

arrow Considering the pros and cons of owning and renting

arrow Avoiding common mistakes when deciding to buy or rent

Every month, week, and day, we buy things large and small: lunch, a new pair of shoes, and every now and then, a car.

Most people buy things without doing much comparison shopping, but instead draw upon their past experiences. When the counter help at the nearby coffeehouse is friendly and you like the brew, you go back for more.

Sometimes purchases lead you by association to related purchases. You get a pet cat or dog, for instance, and buying a collar and pet toys may naturally follow. By the same token, you buy a home, and before long you have a new television and gardening gloves.

You end up being really happy with some items you purchase. Others fall short of your expectations … or worse. When the items in question don’t cost you much, it’s no big deal. Perhaps you return them or simply don’t buy more in the future. But when it comes to buying a home, that kind of sloppy shopping can lead to financial and emotional disaster.

If you’re not willing to invest time, and if you don’t work with and heed the advice of the best people, you could end up overpaying for a home you hate. Our goals in this book are simple: to ensure that you’re happy with the home you buy, that you get the best deal you can, and that owning the home helps you accomplish your financial goals.

Weighing the Advantages of Owning versus Renting

Nearly everyone seems to have an opinion about buying a home. People in the real estate business — including agents, lenders, property inspectors, and other related people — endorse homeownership. Of course, why wouldn’t they? Their livelihoods depend upon it! Therein lies one fundamental problem of nearly all home buying books written by people who have a vested interest in convincing their readers to buy a home.

remember Homeownership isn’t for everyone. One of our objectives in this chapter is to help you determine whether home buying is right for you.

Consider the case of Peter, who thought that owning a home was the best financial move he could make. What with tax write-offs and living in a place while it made money for him, he thought how could he lose? Peter envied his colleagues at work who’d seemingly made piles of money with property they bought years ago. Peter was a busy man and didn’t have time to research other ways to invest his money.

Unfortunately, Peter bought a place that stretched his budget and required lots of attention and maintenance. Adding insult to injury, Peter went to graduate school clear across the country (something he knew he was likely to do at the time he bought) three years after he purchased. During these three years of his ownership, home prices dropped 10 percent in Peter’s neighborhood. So after paying the expenses of sale and closing costs, Peter ended up losing his entire down payment when he sold.

Conversely, some people who continue to rent should buy. In her 20s, Melody didn’t want to buy a home, because she didn’t like the idea of settling down. Her monthly rent seemed so cheap compared with the sticker prices on homes for sale.

As it always does, time passed. Melody’s 20s turned into 30s, which melted into 40s and then 50s, and she was still renting. Her rent skyrocketed to eight times what it was when she first started renting — that insignificant $150 monthly rent was now over $1,200 per month. Even with the late 2000s real estate price declines, home prices really seemed out of sight compared with three decades earlier. She fearfully looked ahead to escalating rental rates in the decades when she hoped to be retired.

Ownership advantages

Most people should eventually buy homes, but not everyone and not at every point in their lives. To decide whether now’s the time for you to buy, consider the advantages of buying and whether they apply to you.

Owning should be less expensive than renting

You probably didn’t appreciate it growing up, but in addition to the diaper changes, patience during potty training, help with homework, bandaging bruised knees, and countless meals, your folks made sure that you had a roof over your head. Most of us take shelter for granted, unless we don’t have it or are confronted for the first time with paying for it ourselves.

Remember your first apartment when you graduated from college or when your folks finally booted you out? That place probably made you appreciate the good deal you had before — even those cramped college dormitories may have seemed more attractive!

But even if you pay several hundred to a thousand dollars or more per month in rent, that expense may not seem so steep if you happen to peek at a home for sale. In most parts of the U.S., we’re talking about a big number — $150,000, $225,000, $350,000, or more for the sticker price. (Of course, if you’re a medical doctor, lawyer, management consultant, or investment banker, you probably think that you can’t find a habitable place to live for less than a half-million dollars, especially if you live in costly places such as New York City, Boston, Los Angeles, or San Francisco.)

tip Here’s a guideline that may change the way you view your seemingly cheap monthly rent. To figure out the price of a home you could buy for approximately the same monthly cost as your current rent, simply do the following calculation:

Take your monthly rent and multiply by 200, and you come up with the purchase price of a home.

  • $ _________ per month × 200 = $ _________
  • Example: $ 1,000 × 200 = $200,000

So in the preceding example, if you were paying rent of $1,000 per month, you would pay approximately the same amount per month to own a $200,000 home (factoring in tax savings). Now your monthly rent doesn’t sound quite so cheap compared with the cost of buying a home, does it? (Note that in Chapter 3 we show you how to accurately calculate the total costs of owning a home.)

warning Even more important than the cost today of buying versus renting is the cost in the future. As a renter, your rent is fully exposed to increases in the cost of living, also known as inflation. A reasonable expectation for annual increases in your rent is 4 percent per year. Figure 1-1 shows what happens to a $1,000 monthly rent at just 4 percent annual inflation.


© John Wiley & Sons, Inc.

Figure 1-1: The skyrocketing cost of renting.

When you’re in your 20s or 30s, you may not be thinking or caring about your golden years, but look what happens to your rent over the decades ahead with just modest inflation! Then remember that paying $1,000 rent per month now is the equivalent of buying a home for $200,000. Well, in 40 years, with 4 percent inflation per year, your $1,000-per-month rent will balloon to $4,800 per month. That’s like buying a house for $960,000!

checkitout In our example, we picked $1,000 for rent to show you what happens to that rent with a modest 4 percent annual rate of inflation. To see what may happen to your current rent at that rate of inflation (as well as at a slightly higher one), simply complete Table 1-1. (You can also access Table 1-1 online at

Table 1-1 Figuring Future Rent

Your Current Monthly Rent

Multiplication Factor to Determine Rent in Future Years at 4 Percent Annual Inflation Rate

Projected Future Rent


× 1.48

= $___________in 10 years


× 2.19

= $___________in 20 years


× 3.24

= $___________in 30 years


× 4.80

= $___________in 40 years


× 7.11

= $___________in 50 years


× 10.52

= $___________in 60 years

Your Current Monthly Rent

Multiplication Factor to Determine Rent in Future Years at 6 Percent Annual Inflation Rate

Projected Future Rent


× 1.79

= $___________in 10 years


× 3.21

= $___________in 20 years


× 5.74

= $___________in 30 years


× 10.29

= $___________in 40 years


× 18.42

= $___________in 50 years


× 32.99

= $___________in 60 years

remember If you’re middle-aged or retired, you may not plan on having 40 to 60 years ahead of you. On the other hand, don’t underestimate how many more years of housing you’ll need. U.S. health statistics indicate that at age 50, you have a life expectancy of nearly 30 more years, and at age 65, nearly 20 more years.

Although the cost of purchasing a home generally increases over the years, after you purchase a home, the bulk of your housing costs aren’t exposed to inflation if you use a fixed-rate mortgage to finance the purchase. As we explain in Chapter 6, a fixed-rate mortgage locks your mortgage payment in at a fixed amount (as opposed to an adjustable-rate mortgage payment that fluctuates in value with changes in interest rates). Therefore, only the comparatively smaller property taxes, insurance, and maintenance expenses will increase over time with inflation. (In Chapter 3, we cover in excruciating detail what buying and owning a home costs.)

remember You’re always going to need a place to live. And over the long term, inflation has almost always been around. Even if you must stretch a little to buy a home today, in the decades ahead, you’ll be glad you did. The financial danger with renting long term is that all your housing costs (rent) increase over time. We’re not saying that everyone should buy because of inflation, but we do think that if you’re not going to buy, you should be careful to plan your finances accordingly. We discuss the pros and cons of renting later in this chapter.

You can make your house your own

Think back to all the places you ever rented, including the rental in which you may currently be living. For each unit, make a list of the things you really didn’t like that you would have changed if the property were yours: ugly carpeting, yucky exterior paint job, outdated appliances that didn’t work well, and so on.

Although we know some tenants who actually do some work on their own apartments, we don’t generally endorse this approach because it takes your money and time but financially benefits the building’s owner. If, through persistence and nagging, you can get your landlord to make the improvements and repairs at her expense, great! Otherwise, you’re out of luck or cash!

When you own your own place, however, you can do whatever you want to it. Want hardwood floors instead of ugly, green shag carpeting? Tear it out. Love neon-orange carpeting and pink exterior paint? You can add it!

warning In your zest and enthusiasm to buy a place and make it your own, be careful of two things:

  • Don’t make the place too weird. You’ll probably want or need to sell your home someday, and the more outrageous you make it, the fewer buyers it will appeal to — and the lower the price it will likely fetch. If you don’t mind throwing money away or are convinced that you can find a buyer with similarly (ahem) sophisticated tastes, be as weird as you want. If you do make improvements, focus on those that add value: skylights, a deck addition for an outdoor living area, updated kitchens and bathrooms, and so on.
  • Beware of running yourself into financial ruin. Changing, improving, remodeling, or whatever you want to call it costs money. We know many home buyers who neglect other important financial goals (such as saving for retirement and their kids’ college costs) in order to endlessly renovate their homes. Others rack up significant debts that hang like financial weights over their heads. In the worst cases, homes become money pits that cause owners to build up high-interest consumer debt as a prelude to bankruptcy or foreclosure.

You avoid unpleasant landlords

A final (and not inconsequential) benefit of owning your own home is that you don’t have to subject yourself to the whims of an evil landlord. Much is made among real estate investors of the challenges of finding good tenants. As a tenant, perhaps you’ve already discovered that finding a good landlord isn’t easy, either.

remember The fundamental problem with some landlords is that they’re slow to fix problems and make improvements. The best (and smartest) landlords realize that keeping the building shipshape helps attract and keep good tenants and maximizes rents and profits. But to some landlords, maximizing profits means being stingy with repairs and improvements.

When you own your home, the good news is that you’re generally in control — you can get your stopped-up toilet fixed or your ugly walls painted whenever and however you like. No more hassling with unresponsive, obnoxious landlords. The bad news is that you’re responsible for paying for and ensuring completion of the work. Even if you hire someone else to do it, you still must find competent contractors and oversee their work, neither of which is an easy responsibility.

Another risk of renting is that landlords may decide to sell the building and put you out on the street. You should ask your prospective landlords whether they have plans to sell. Some landlords won’t give you a truthful answer, but the question is worth asking if this issue is a concern to you.

tip One way to avoid being jilted by a wayward landlord is to request that the lease contract guarantee you the right to renew your annual lease for a certain number of years, even with a change in building ownership. Unless landlords are planning on selling, and perhaps want to be able to boot you out, they should be delighted with a request that shows you’re interested in staying a while. Also, by knowing if and when a landlord desires to sell, you may be able to be the buyer!

Renting advantages

Buying and owning a home throughout most of your adult life makes good financial and personal sense for most people — but not all people and not at all times. Renting works better for some people. The benefits of renting are many:

  • Simplicity: Yes, searching for a rental unit that meets your needs can take more than a few days (especially if you’re in a tight rental market), but it should be a heck of a lot easier than finding a place to buy. When you buy, you must line up financing, conduct inspections, and deal with myriad other issues that renters never have to face. When you do it right, finding and buying a good home can be a time-consuming pain in the posterior.
  • Convenience: After you find and move into your rental, your landlord is responsible for the never-ending task of property maintenance and upkeep. Buildings and appliances age, and bad stuff happens: Fuses blow, plumbing backs up, heaters break in the middle of winter, roofs spring leaks during record-breaking rainfalls, trees come crashing down during windstorms. The list goes on and on and on. As a renter, you can kick back in the old recliner with your feet up, a glass of wine in one hand and the remote control in the other, and say, “Ahhhhh, the joys of not being part of the landed gentry!”
  • Flexibility: If you’re the footloose and fancy-free type, you dislike feeling tied down. With a rental, as long as your lease allows (and most leases don’t run longer than a year), you can move on. As a homeowner, if you want to move, you must deal with the significant chores of selling your home or finding a tenant to rent it.
  • Increased liquidity: Unless you’re the beneficiary of a large inheritance or work at a high-paying job, you’ll probably be financially stretched when you buy your first home. Coming up with the down payment and closing costs usually cleans out most people’s financial reserves. In addition, when you buy a home, you must meet your monthly mortgage payments, property taxes, insurance, and maintenance and repair expenses. As a renter, you can keep your extra cash to yourself, and budgeting is also easier without the upkeep-expense surprises that homeowners enjoy, such as the sudden urge to replace a leaking roof or old furnace.

    tip You don’t need to buy a home to cut your taxes. Should you have access to a retirement account such as a 401(k), 403(b), SEP-IRA, or Keogh plan (see Chapter 2), you can slash your taxes while you save and invest your extra cash as a renter. So saving on taxes shouldn’t be the sole motivation for you to buy a home.

  • Better diversification: Many homeowners who are financially stretched have the bulk of their wealth tied up in their homes. As a renter, you can invest your money in a variety of sound investments, such as stocks, bonds, and perhaps your own small business. You can even invest a small amount of money in real estate through stocks or mutual funds if you want (see Chapter 16). Over the long term, the stock market has produced comparable rates of return to investing in the real estate market.
  • Maybe lower cost: If you live in an area where home prices have rocketed ahead much faster than rental rates, real estate may be overpriced and not a good buy. This happened in some areas (portions of California, Florida, and Nevada, for example) in the U.S. in the mid-2000s. In Chapter 4, we explain how to compare the cost of owning to the cost of renting in your area and how to spot a potentially overpriced real estate market.

    remember Renting should also be cheaper than buying if you expect to move soon. Buying and selling property costs big bucks. With real estate agent commissions, loan fees, title insurance, inspections, and all sorts of other costs, your property must appreciate approximately 15 percent just for you to break even and recoup these costs. Therefore, buying property that you don’t expect to hold onto for at least three (and preferably five or more) years doesn’t make much economic sense. Although you may sometimes experience appreciation in excess of 15 percent over a year or two, most of the time, you won’t. If you’re counting on such high appreciation, you’re setting yourself up for disappointment.