Rent or buy a house: what to choose

When looking for a new home, it is usual to ask what is more convenient, whether to rent a home or choose to buy it. Many factors come into play in this decision-making process, such as if it is the right time to buy your house, but the main one has to do with the economic impact on the future tenant or buyer. Knowing what is best for us is a matter of getting to the numbers and dedicating time. Below we offer the variables that you must take into account when assessing whether it is preferable to buy or rent a home.

Initial disbursement

Whether at the time of buying a home or renting it, facing a series of initial costs is inevitable. However, these differ significantly depending on which option is chosen.

Initial disbursement for rent

Deposit. The average rent in Spain for the year 2016 was around € 700 per month, this figure is indicative of the purposes of the comparative example. If the usual thing is that they require us for 1 to 3 months of rent, as a guarantee, the initial payment just moves can go from 700 to 2,100 €.

Real Estate If we manage the search and the rental contract through a real estate agency, the rate is linked to the uses and customs of each geographical area, but the most usual is that they charge a monthly rent, so, taking as a reference the figure Indicative of the average rent indicated for Spain, another € 700 would have to be added.

Initial payment for the purchase

Assuming you are going to apply for a mortgage loan, let’s take as an example for the approximate calculation of the initial costs a house of € 120,000. At the price of the house, a series of expenses associated with the sale and formalization of the mortgage loan must be added, which are normally borne by the buyer, which are usually, among others, the following:

Own resources. The most common thing today is for the bank to finance up to 80% of the home we want to acquire. The remaining 20% must be delivered at the time of signing the deed of sale, that is, in addition to the amount obtained with the financing, we will have to deliver the remaining amount of the purchase price of the home. If we want to buy a home of € 120,000, 24,000 will have to be contributed to our own resources. Without forgetting the taxes and administrative expenses.

Notary. The granting of the deed of sale and, in addition, of the loan contract with mortgage guarantee -hipoteca- must be done before a notary, whose cost is based on the price of the operation.

Registration It is advisable to register the deed of sale for the registration protection against third parties that provides the publicity of the Property Registry. In the case of the mortgage loan, registration in the Land Registry is mandatory.

Tax on Documented Legal Acts -AJD-. It is a tax that is paid for documents such as public deeds and deeds or by notarial testimonies. When a home is purchased, it must be paid between 0.5% and 1.5% (depending on the Autonomous Community) of the price of the deed of the purchase-sale contract provided it is the first transfer for VAT purposes. If you have also applied for a mortgage, you must also pay between 0.5% and 1.5% (depending on the Autonomous Community) of the total mortgage liability, if you have done so. For a mortgage of € 96,000, the AJD for the purchase-sale deed would be equivalent to € 960 (for a rate of 1%) and if the mortgage liability amounted to € 130,000, the AJD for this concept would be € 1,300 (for a 1% rate).

Appraisal. It is requested if a mortgage loan is requested. Its price varies depending on the square meters and the characteristics of the house.

Gestoría. The intervention of an agency may be necessary or if a mortgage loan is requested, and its cost is variable depending on the efforts made.

VAT The purchase and sale of a new home are subject to the payment of VAT, which for this type of transaction is 10% of the total amount of the consideration paid. For the houses of official protection of special regime or public promotion carried out by their promoters, VAT is 4%. If not included in the final price, this expense is € 12,000 for a home of € 120,000.

ITP. If you buy a second-hand home, you must pay the Heritage Transfer Tax -ITP-. It varies from one autonomous community to another, but the ITP average is 8% on the real value of the property. For the case of a home whose real value amounts to € 120,000, it will be € 9,600.

Registration verification.

Opening or subrogation fees.

In the case of having applied for a mortgage of € 120,000, by way of example, the initial payment of the purchase of a flat or house of € 120,000 can amount to € 35,400 on average with VAT; 23,400 if the VAT is already included in the final price of the house.

Monthly disbursement

As we explained above, by way of example, the average price of a rental in Spain is € 700, with these large differences between provinces. On the other hand, for a variable-rate mortgage loan at € 100,000 with a Euribor + 1.25% to be repaid in 25 years, the monthly fee is € 388. The difference is € 312 in favor of the mortgage.

Thus, while the initial cost is much cheaper in the case of renting, at the time of facing the monthly payments and with the average costs in hand, the mortgage payments are more reduced.

Additional costs to consider

When valuing between the rent or the purchase of a home, there are other additional expenses, apart from the initial disbursements indicated for each assumption, such as the payment of the monthly rental income or the monthly mortgage payment.

Depending on the specific assumption, when buying a home it is advisable to take out home insurance – at least against fires. In addition, the owner will have to pay the payment of the Real Estate Tax, as well as the obligatory expenses derived from the community of owners. These last two expenses will not exist in the rent unless there is an agreement to the contrary in the lease agreement.

Buy or rent

BBVA offers its customers and non-customers a new tool that will help make the best decision about buying and renting. Within BBVA Valora, the Buy or Rent functionality is already available, with which the different costs of buying a house or monthly rent are calculated. You just have to enter a series of data, such as the years you expect to live in that house, or its price, so that we can offer you information that can be very useful to make a complex decision.