The choice between renting a home and buying one of the biggest financial decisions anyone will ever make. However, the costs of buying are more complicated than renting, making it tough to tell which one is the better option. When choosing whether to rent or to buy a home, ask yourself the following questions.
How long are you staying in the area?
Are you taking a position that will only last for a year or less? In this situation, you should probably rent since you will not be in the area long. What if you are in the military? You don’t know when or if you will be transferred to another base or deployed. In this case, it may be better to rent rather than buy a house.
How long do you expect to be in the home?
If you plan to remain in the area for a significant period of time, buying a home may be the way to go. Remember, buying and selling a home costs money and requires a significant amount of time and effort. If you plan to stay less than five years, maybe renting is the best option.
Would you be content if circumstances meant you had to stay longer in the area?
People who bought a “starter” home before the Great Recession thought they would be able to sell and buy a larger home in a few years. Well, things didn’t work out that way and people were stuck in homes that were now worth less than they owed on their mortgages. While home prices are on the uptick right now, there is no guarantee they will continue to rise.
How stable are you in your job and life?
Say you are in a declining industry and your job is not secure, perhaps you do not want to lock yourself into a mortgage or a new city. Buying a house and selling it the next year to relocate is likely to cost you some money.
How do the monthly costs compare?
Take your time to do the math and make sure you consider all the costs of owning a home. This includes property taxes – which vary greatly across the country, insurance, HOA or condo fees, yearly home maintenance, HVAC, and other unexpected costs that may arise. Utility costs may be higher if you buy, since many rentals include some or all utilities.
Do you have an emergency savings fund to pay for repairs?
All homes, even newer ones, will need repairs from time to time. Water heaters and pipes break and leak, termites may stop by to wreak havoc, or you might even accidentally start a small fire with a hair dryer!
How much is a down payment for a house and do you have it?
While it is possible to buy a house with as little as 3.5 percent down payment with a FHA mortgage, this is a competitive market with sellers deciding to choose offers with higher down payments and fewer contingencies. An added bonus with a higher down payment means a lower mortgage payment and no private mortgage insurance.
What part of the country are you moving to?
Some areas like the New York or San Francisco Bay metro areas have a higher cost of living, even though the pay is better than other parts of the country. Many people have been priced out of these areas. They may be able to rent something, but buying is out of the question unless they have a budget of over $450,000 or more (a guesstimate), and that’s just buying a place that has 800 square feet or less (another guesstimate).
Would you be better off financially if you spent your money elsewhere?
Depending on how your money is invested, you may be better off financially renting and using your savings for investments. Research the alternatives and determine which path is best for you.
Everyone’s path to homeownership will be different. Determine what will be best for you at this time. Remember, always research the area you are or will be living in, to save yourself a lot of time and money.