Factoring credit into the renting vs. buying debate

Factoring credit into the renting vs. buying debate

The desire to buy a house exists as an enduring through-line in American culture, and it used to be considered all but essential. In the not-so-distant past, renting instead of buying was sometimes perceived as a temporary compromise, half-measure or even a failure, depending on one's perspective.

The renting vs. buying debate is no longer as cut-and-dried as it once was."

Certain facts of recent U.S. history punctured the balloon in that particular bit of conventional wisdom, most notably the housing bubble, the financial crisis of 2008 and the half-decade of the Great Recession. According to the Pew Research Center, more than 43 million Americans noted as heads of households (for purposes of the U.S. Census) said they rented their homes as of 2016 - a number larger than any seen since 1965. 

In today's world, renting or buying is conditional on financial means (and history), cost and choice. Today we'll quickly go over how modern consumers can make the best choice for themselves - and how alternative credit reporting may ultimately be beneficial to that decision-making process. 

Examining location and other factors 
A study conducted by NerdWallet found that American homeowners pay anywhere from 33 percent to 93 percent more for their housing than renters do. There isn't a single U.S. state (or, in the District of Columbia's case, region) where the inverse is true. Thus, in the most literal sense, it is often cheaper to rent than buy. But as with most financial matters, it isn't that simple. 

Location may be the biggest determinant of whether renting or buying will be best for you. For many residents of major cities - say, young professionals with entry-level jobs - renting is all but essential, due to the always-higher cost of living in any urban environment, so it would be cheaper than trying to mortgage a house. Conversely, in suburbs, it will be considerably more feasible to put a payment down on a home and begin a mortgage, if not necessarily directly cheaper.

It's when you start to consider the supplementary perks of homeownership that the question becomes more nuanced. As NerdWallet noted, renters can't deduct mortgage payments from their taxes as homeowners can. A home equity line of credit built up through completed payments can also be beneficial in many ways. If anything truly tips the scales in favor of buying as opposed to renting, it's probably this.

The roles of standard and alternative credit  
Credit checks occur before every lease agreement or mortgage. Typically it will be more important to mortgage lenders that your credit be top-notch, as you're hoping to assume stewardship of an extremely valuable asset. Renting an apartment, by contrast, involves less property risk for landlords, so while they'll look at a would-be renter's FICO score, any issues with it can be outweighed by proof of steady income that syncs up with what the regular mortgage payment would be. 

Alternative credit benchmarks, like timely rent and utility payments, child care expenses, rent-to-own agreements and more, may help swing a lender's opinion in your favor, if you're seeking a mortgage and don't have perfect traditional credit. Contact PRBC to see how our credit decisioning platform can benefit you further.