Buying a home is undoubtedly a significant life decision, but is it the right one for you? Of course, there is no one-size-fits-all answer, as both renting and buying have advantages and disadvantages. However, your personal finances play a significant role in your decision-making process. Renting appears to be the most cost-effective alternative in most circumstances.
That isn’t always the case, though. Several lifestyle concerns, such as whether you desire freedom or stability, what your job aspirations are, and whether you want a location to genuinely call your own, can all influence your selection.
If you’re on the fence about whether to rent or buy, keep reading to learn what you should think about before making a decision.
Making Your Decision: A Step-by-Step Guide
- Determine how long you intend to stay in the same location.
To put it another way, do you want to plant roots in your community or do you want more flexibility?
Buying a home may make sense if you are positive you will stay in it for at least 5 years. That’s because it could be a wonderful fit both financially and emotionally, as you can add personal touches to make your house seem truly yours.
If you wish to be more nomadic, though, renting is the preferable alternative. Let’s say you’re adamant about getting that work promotion, but it’s halfway across the nation. You don’t want to have to deal with the stress of selling your home while looking for a new job.
Perhaps you’ve recently relocated to a new location and want to spend some time getting to know the different areas before settling down.
You can buy a house and then sell it in a few years, but the costs are too high. Aside from the initial closing and moving charges, you may incur additional closing costs when selling a home, on top of other expenses like repairs and renovations that would help the house sell for top money.
- Calculate the difference between renting and buying.
Because of the upfront fees, renting can often be less expensive than buying a home. A down payment, closing charges, moving costs, any improvements, and other property upkeep activities are all included.
However, just because you can afford a mortgage payment does not guarantee you can afford a home; costs add up quickly. You’ll have property taxes, homeowners insurance, and (in many cases) mortgage insurance, as well as homeowners association (HOA) fees in addition to a monthly payment that exceeds the principal and interest on your mortgage.
Buying a home, on the other hand, can save you money in the long term and allow you to create equity. When you sell your home, hopefully, its value has increased.
Buying a home is really less expensive in most locations of the United States. According to research by the National Association of REALTORS®, a homeowner’s mortgage payment is lower than a renter’s after six years. This assumes that the rent increases by 5% per year and that the homeowner pays a set monthly payment.
Being a homeowner can also save you money on taxes, though due to recent tax changes, you may be limited in how much mortgage interest, state and local property taxes you can deduct. After three years, a homeowner’s payment will be less than a renter’s monthly, according to the same data from the National Association of REALTORS®.
- Which is more important to you: mobility or establishing roots?
It’s difficult to foresee what will happen next in your life, even with the greatest of intentions. Buying a home may make the most sense if you want to stay in one place for a long time and have the financial resources to do so.
However, it’s critical to assess your current life position and consider whether or not it will alter in the next years. If this happens, your housing demands may alter as well, and you may wish to put off buying a property.
You and your long-term partner, for example, may have recently become engaged and are planning to marry within the next two years. Buying may not be the best option in this scenario. Before buying a house, you and your partner might want to figure out how to combine your finances and establish a budgeting regimen.
Let’s imagine you and your partner recently married and aren’t sure if you want to create a family right now. If you think you might want to start a family soon, don’t buy a house that won’t be able to handle a growing family in a few years.
- Consider The Benefits And Drawbacks Of Both Renting And Buying
Both renting and purchasing property have dangers to consider. While owning a home might help you develop equity, it also comes with some financial hazards. For one thing, if the real estate market in your area declines, you could lose money. Alternatively, if you sell your house sooner than expected, you may not be able to recoup your closing costs or renovation costs.
Not to mention the costs of home upkeep. These are costs you’ll have to pay to keep the house in good shape. Checking air filters and vents, testing fire alarms, gardening, and repairing plumbing problems are just a few examples of fixes.
Adding house upkeep to your list of chores may not be the greatest choice if you’re focused on other life goals, such as work that demands frequent travel or if you have many young children to care for.
Renting, on the other hand, implies you won’t be able to accumulate equity like you would if you bought. Your monthly rent could increase at any time. You’re also at the mercy of your landlord, who may order you to vacate or defer repair demands.
- Examine your financial circumstances.
It’s vital to remember that while picking between renting and owning, you must be realistic about your financial condition. After you’ve calculated the costs of renting vs. buying, be honest with yourself about whether you can afford extra upfront costs like as a down payment, repairs, moving expenses, and purchasing new furniture. Use our Mortgage Calculator to figure out how much house you can buy and what your monthly payments will be.
In either case, do some thorough budgeting to ensure that you can afford to buy or rent whatever you pick.
