Whether you rent or own, you still have monthly expenses to pay in exchange for a place to live. That said, there are clear differences between paying a mortgage versus paying rent every month. But while rent may often be the more affordable and easier option for paying for a home, mortgages can sometimes be the better route to take.

There are definitely perks to each, and one may be better than the other for different people. The decision between one and the other comes down to a number of factors, such as your financial situation, your lifestyle, and the market where you live.

If you’re currently trying to decide whether to rent or buy, consider the following differences between a mortgage and rent.

Ability to Remain on Site For the Long Haul

If you’re paying a mortgage, you’re in charge. You own the place, and as such, it’s completely up to you whether or not you decide to stay put for the long term or choose to sell and move at your discretion.

If you rent, however, you’re always at the mercy of your landlord. Of course, your lease is a legal document that does not permit your landlord to force you to move out with little notice before the expiry date arrives, unless you have breached the contract.

But once your 12 months are over, your landlord has the right to request that you move out if they follow the landlord-tenant rules in your jurisdiction. That means you could find yourself looking for a new place to live, even though you may have enjoyed where you were living.

Freedom to Move at Will

On the flip side to what was just discussed, renting provides you with much more freedom and flexibility when it comes to moving. While you still have to honor the 12-month lease stipulation (unless you have a valid reason to move out sooner), vacating a rental unit and moving to another is a lot easier and filled with less red tape compared to having to sell a home and buy a new one.

If your lifestyle is rather transient or you’re simply not the type to be tied down to any particular place, then renting might be a better option. Of course, that doesn’t mean that you can’t sell whenever you’d like to. But renting certainly makes these transitions much easier.

Tax Deductions

While part of each mortgage payment goes towards paying down the principal portion of the mortgage, a big chunk also goes towards interest. That can add up to a lot of money being dished out to the lender by the time the loan is fully paid off.

But as frustrating as it can be to pay interest every month, homeowners can take advantage of certain tax breaks that come with homeownership, and one of these perks is deducting the interest portion of their mortgage payments. This can help to reduce the overall cost at the end of the year. In the majority of cases, rent is not tax deductible, which means you could owe a lot more in taxes compared to having a mortgage.

Credit Boost

Having a mortgage – and being responsible with it – can help to improve your credit score and keep it up there. As long as you make your mortgage payments on time every month, your credit score will be affected positively. Lenders report mortgage payments to the major credit bureaus that will then note your activity on your credit report.

While paying rent on time every month could potentially help with your credit score, this will only be the case if your landlord reports your activity to the credit bureaus, which they’re not obligated to do.

Upfront Expenses

There are very few up-front costs to renting, aside from providing first and last months’ rent and buying a few pieces of furniture. But buying a home requires a lot more in out-of-pocket expenses in comparison.

Taking out a mortgage typically requires any of the following:

• Down payment
• Appraisal fees
• Underwriting fees
• Lender fees
• Title insurance
• Home inspection
• Private mortgage insurance (PMI)

Generally speaking, you can expect to pay anywhere between 2% to 5% of the purchase price of your home when you buy. These are costs you won’t have to worry about with rent.

Increase in Monthly Payments

Both renting and paying a mortgage can come with the risk of an increase in monthly payments. If you rent, your landlord can increase the rent every year, as long as they follow the protocol for rent increases in your jurisdiction.

But mortgages can also increase. If you take out an adjustable-rate mortgage, your payments can fluctuate based on changes in the interest rate. That said, if you have a fixed-rate mortgage, the payments will remain the same until the mortgage is renewed.

Additional Costs

In addition to mortgage payments, there are a number of other costs associated with owning that you wouldn’t have to worry about with renting. For instance, maintenance, repairs, property insurance, and property taxes are costs that you have to deal with that renters typically don’t pay.

Equity Accumulation

A mortgage payment gives you the opportunity to build equity in your home. Equity is the difference between the value of the home and what you owe on the mortgage. With each payment you make, the equity in the home builds, as long as the property doesn’t depreciate in value. You can then use that equity (once a certain amount is built up) to be used to cover the cost of home improvements, consolidate debt, or for other major expenses.

Rent does not provide such an opportunity. You need to keep on paying rent month after month without seeing any fruits of your labor. On the plus side, however, you can use whatever money you save from not having to pay for ongoing costs associated with homeownership to invest in other vehicles that can help you build wealth over time.

The Bottom Line

While mortgage payments or rent payments are necessary to cover the cost of living, they’re certainly not the same. Both come with their own benefits and drawbacks, and the decision you make between paying rent versus a mortgage will depend on a number of things, including your financial position and your desire from freedom versus stability.

This week took me to the most charming lunch spot, Pasta Al Gusto. Located at 3737 N Southport Avenue, this gem is tucked right next to the popular Music Box Theatre. We came in at about 2:30 on a Sunday afternoon for a late lunch. They have an awesome lunch special- just $8.99 for your choice of a salad, panini, or pasta dish. After perusing the menu, I decided to go with the Italian Meatball Panini lunch special: three giant homemade meatballs with sweet green peppers and fontina cheese on a fresh Italian roll, served with a side of tomato marinara sauce. This was fantastic! The roll was marvelous, soft on the inside and crispy on the outside. They weren’t kidding when they said the meatballs were gigantic! The sandwich was absolutely huge, I definitely could have split with another person. The flavor of the meatballs was delicious and I loved the combination of the hot, melted cheese and sweet green peppers. My best friend ordered the Maccaroni al Formaggio: macaroni and cheese made with asparagus, onion, and sun-dried tomatoes, garnished with toasted bread crumbs. This was wonderful as well! It was so cheesy, but the fresh vegetables gave it more crunch and body. My other friend ordered the Rotini al Gusto: rotini pasta with grilled chicken, sun-dried and fresh tomatoes, mushrooms, basil, and pecorino cheese topped with a cream sauce. It’s hard to choose, but this may have been my favorite dish I tried! I loved the grilled chicken and the cream sauce was fantastic. I will definitely be back to try more things here!

Pasta Al Gusto is closed on Mondays. They are open Tuesdays through Saturdays from 11 am to 11 pm and Sundays from 11 am to 10 pm. They deliver and provide catering services. For more information, check out their website.

RACHEL HOOVLER & DEAN’S TEAM CHICAGO

Thinking of applying for a mortgage any time soon? If so, you’d be well-advised to get your finances in order, and that includes ensuring that your credit score is up to par.

You certainly don’t want to be missing any debt payments, which is an obvious way to pull your credit score down. But there are plenty of not-so-obvious ways that could negatively impact your credit score without you even realizing it. Here are a few surprising things that can put in a ding in your credit score.

1. Having No Loans

This might sound counter-intuitive, right? After all, isn’t the goal to be completely debt-free? While you certainly don’t want to be drowning in debt, having no debt at all might actually not be such a positive thing for your credit score. That’s because your credit score is based on your financial activity, including your ability to keep up with debt payments. But if you have no debt to pay off, the credit bureaus will have nothing to go on in terms of calculating your credit score.

Credit scoring systems tend to boost credit scores for consumers who have a diversified portfolio of debt. Now, this doesn’t mean that you should go out and apply for a bunch of loans, as this can have a negative impact on your credit score. That said, having a few debts on the books can be a good thing for your credit score if you’re keeping up with your payments.

2. Unpaid Child Support

If you are responsible for paying child support, make sure not to miss a payment. Any unpaid child support can be reported to the credit bureaus. If that happens, your credit score will certainly suffer. 

3. Unpaid Utility Bills

If you have a habit of missing payments to the gas or electric company, you could suffer a lot more than just having your lights shut off. If the credit bureaus get wind of your missed payments, your credit score could take a dip.

4. Only Spending Cash

There’s nothing wrong with spending cash, especially if you want to keep your credit card utilization down (more on this later). It’s also a great way to avoid increasing your debt. But spending cash exclusively might not actually be a good thing for your credit score.

After a few months of not using a credit card, your credit card issuer could stop reporting your activity to the credit bureaus, which can lower your score. You can effectively prevent this from happening by using your credit card once in a while just to show your credit card company that you’re still active with your credit and are responsible with your payments.

5. Unpaid Parking Tickets

Finding a parking ticket on your dashboard can be incredibly frustrating, but you still have to pay it. If you neglect to pay it or wait too long to deal with it, the municipality in which the ticket was issued will likely get collections after you.

If this happens, you run the risk of such a situation being noted on your credit report, which can then have a negative effect on your credit score. Not only that, but collections accounts can stay on your credit report for years before being dropped off.

6. Closing Old Accounts

Paying off a high credit card balance is a commendable feat, but that doesn’t mean you should necessarily close that account after you’ve reached that goal. Although paying down debt can be a good thing, closing an account might not be. In fact, closing old accounts can reduce your credit history, which is a bad thing for your credit score.

Instead, keep your accounts open, even if you’ve paid them off. And if you think that you’ve got too many accounts, consider closing the newer accounts and leave the older ones open.

7. Requesting a Change on Your Credit Card Terms

Whether you ask your credit card issuer to reduce your interest rate or increase your credit limit, such changes could impact your credit score. That’s because your credit card provider will likely pull your credit report to make sure that such changes are justified according to your credit health. Every time a lender or creditor pulls your credit report, a “hard inquiry” will be noted, which can pull down your credit score.

It should be noted that asking for a credit limit increase can be a good thing. That’s because it can reduce your credit utilization ratio, which is the amount of revolving credit that you currently use divided by the credit you have available to you. A low credit utilization ratio is typically a good thing for your credit score, but just be wary that such a request can temporarily affect it in a negative way.

8. Not Paying Library Fines

A few dollars owed in library fines might not sound like a big deal, but if the library decides that you’ve waited too long to pay, they could call a collections agency to get on you to pay up. If that happens, it could be reported on your credit report and your score can be pulled down.

9. Being Late on Rent Payments

Like any other bill, your rent needs to be paid on time every month. If not, you could suffer a reduction in your credit score if your landlord decides to call a collections agency to come after you. This delinquency can the stay on your credit report for a few years, which can not only affect your credit score, but it can also make it harder for you to land another rental in the future.

The Bottom Line

The best way to keep your credit score healthy is to understand exactly what things can give your score a boost and what can drag it down. Once you know what can affect your score – both positively and negatively – you can be more prudent about maintaining a healthy score in order to boost your odds of securing a mortgage with rates and terms you can be comfortable with.

When it comes to buying a house and getting a mortgage, you need to be in healthy financial shape. And part of being financially sound is having a strong credit score. Your credit score says a lot about you, at least as far as how strong your financial history is.

Without a decent credit score, getting approved for a mortgage will prove to be a challenge. Lenders use your credit score to assess how risky you would be as a borrower. A score on the lower end of the spectrum will tell lenders that you’ve got a less-than-perfect financial past that may be littered with missed payments, too many opened credit accounts, and potentially a judgment.

But just because your credit score might be a little on the lower end doesn’t mean you’re completely out of the running for a mortgage. What you need to do is take some steps to improve your score so that lenders will look more favorably on you.

If you have a little bit of time to spare when it comes to buying a home, consider hunkering down and making an effort to inch your credit score back to where it can be. This will make securing a mortgage much easier.

Here are a few ways to improve your credit score before making a home purchase.

1. Check Your Credit Report For Errors

One of the first things you should do to improve your credit score is pull your credit report and look for any mistakes. You can obtain a copy of your report for free every 12 months from one of the major credit bureaus: Equifax, Experian, or TransUnion. Knowing what’s on your credit report is important to ensure accuracy.

It’s not uncommon for there to be errors on credit reports, many of which can pull your credit score down. Many of these mistakes can be serious enough to flag identity theft.

By law under the Fair Credit Reporting Act, the credit bureaus have an obligation to investigate any potential mistakes. They must also drop off certain negative information – such as bankruptcy or other judgments – after a certain amount of time has elapsed.

If you find any mistakes, be sure to have them reported and fixed. This step alone can help your score improve.

2. Pay All Your Bills on Time

One of the biggest reasons why consumers suffer from a low credit score is because of missed payments. Debt payments that are 30 to 60 days late get reported to the major credit bureaus. Any notes about late or missed debt payments on your report weigh heavily on credit scores and can cause them to drop significantly.

From here on out, it’s crucial that you remain diligent about making debt payments on time every month if you’re trying to improve your credit score. Just as powerful as missing payments may be to your credit score, so is making timely payments. So make sure you pay all your bills on time and in full each billing cycle to help give your credit score a boost.

3. Only Buy What You Can Afford

This goes without saying, but keeping your expenditures to well within what your finances can comfortably handle is of paramount importance. Credit cards might be handy tools, but spending more than you can afford can land you in hot water if you’re unable to pay your bills because of your lavish spending habits.

Try to avoid making large purchases shortly before trying to get approved for a mortgage and buying a house, and don’t spend any more than you have to. At least until you’ve been approved for a mortgage, try to keep your spending under control. Doing so will help ensure you’ve got the funds available to pay all bills on time every month.

4. Pay Down High-Interest Debt First

If you’ve got high outstanding loan amounts that are being charged high-interest rates, consider focusing on these debts and make every effort to pay them down. Every month, you’re wasting a lot of money paying interest on outstanding debt. Paying down your debt should be part of your game plan, and paying down high-interest debt first should be your main focus.

Credit cards tend to be among the highest-interest debt that consumers have to deal with, which typically come with interest as high as 25% and higher. Paying a few hundred dollars towards a credit card bill that’s being charged 20% interest will have a more significant effect than putting that same money towards a debt load that’s being charged 5%. 

5. Keep Your Credit Card Debt Down

Every credit card holder is given a specific credit limit that they can spend up to. But just because you’re technically allowed to spend up to your limit doesn’t mean you should. The amount you spend relative to your credit limit is what’s known as your “credit utilization” and plays a big role in your credit score.

If your credit utilization ratio is high, your credit score can suffer. Ideally, you should be spending no more than 30% of your credit limit, though less is certainly better. If your credit card debt is high, focus on paying it down to lower your credit utilization ratio and improve your credit score.

6. Don’t Close Out Old Credit Accounts

You might think that closing out unused debt accounts is a good thing for your credit score. But you could be wrong. Sure, negative items are no good for your credit score, but they’ll typically be dropped off your report after an average of seven years. But working to get old accounts off of your credit report because they’re paid off might not necessarily be a good thing.

Any old debt that you’ve already paid off can be considered good debt, especially as it ages. A long history of good debt is good for your credit score. So leave the old debt on your report as long as possible.

7. Don’t Take Out New Loans

Taking out more loans that you should only adds to your debt load, which is never a good thing right before applying for a mortgage. Not only will you be making it more difficult to add another debt payment into the mix in the form of a mortgage, but you’ll also potentially be causing your credit score to dip.

Every time you apply for a loan, the lender will want to check your credit score. When this happens, your credit report will have a “hard inquiry” noted on it. Hard inquiries can pull your credit score down, so to avoid this from happening to you, don’t apply for any new loans so close to applying for a mortgage.

The Bottom Line

Your credit score is a very important little number that plays a critical role in your ability to secure a mortgage. If it’s not as high as it could be, now’s the time to get serious about making the necessary improvements. Not only will a better credit score increase your odds of mortgage approval, but it will also help you get a lower interest rate and better terms that will make paying your mortgage a lot easier.