Without a doubt, purchasing a home is a major life decision, but is it right for you? Of course, there is no single correct answer because both renting and buying have advantages and disadvantages. However, your personal finances will play a significant role in your decision-making process. In most cases, renting appears to be the more cost-effective option.
That is not always the case, however. Several lifestyle considerations, such as whether you want flexibility or stability, what your career goals are, and whether you want a place to truly call your own, can all influence your decision.
If you’re debating whether to rent or buy, keep reading to find out what you should think about before making a decision.
Decide How Long You Plan To Live In The Same Place
In other words, do you want to establish roots in your community or do you want more flexibility?
Buying a home may make sense if you are certain you will stay in it for at least 5 years. That’s because it could be a good fit both financially and emotionally – you can add personal touches to your home and truly make it yours.
However, if you prefer to be more nomadic, renting may be a better option. Let’s say you’re desperate for that job promotion, but it’s halfway across the country. You don’t want to deal with the stress of selling a home while transitioning to a new job. Perhaps you’ve moved to a new area and want to spend some time getting to know the different neighbourhoods before settling down.
You can buy a house and then sell it in a few years, but the costs are prohibitively high. Aside from the initial closing and moving costs, you may incur additional closing costs when selling a home, in addition to other costs such as repairs and renovations that would increase the house’s value.
Estimate The Cost Of Renting Vs. Buying
Because of the upfront costs, renting can sometimes be less expensive than buying a home. This includes the down payment, closing costs, moving expenses, renovations, and other home maintenance tasks.
However, just because you can afford a mortgage payment does not mean you can afford to own a home; expenses accumulate. In addition to your mortgage principal and interest, you’ll have property taxes, homeowners insurance, and (in many cases) mortgage insurance, as well as homeowners association (HOA) fees.
Buying a home, on the other hand, is almost always less expensive in the long run and allows you to build equity. When you sell your home, hopefully its value has increased.
Buying a home is actually less expensive in most areas of the United States. According to a National Association of REALTORS® report, a homeowner’s mortgage payment is lower than that of a renter after 6 years. This assumes a 5% annual increase in rent and a fixed monthly payment by the homeowner fees.
There are also tax benefits to being a homeowner, though recent tax changes may limit how much mortgage interest, state and local property taxes you can deduct. According to the same National Association of REALTORS® report, after three years, a homeowner’s payment will be less than a renter’s payment.
That’s not to say you should buy a house right away. If you’re determined to own a home, it’s perfectly fine to rent for a few years, save up, and then buy. The cost savings of being a homeowner also assume that you will stay in the home for the long term and may not include maintenance costs.
However, even with home maintenance costs, the savings can be significant if you pay off your mortgage and continue to live in the home.
Mobility Vs. Putting Down Roots: Which Is More Important To You?
Even with the best of intentions, predicting what will happen next in your life is difficult. Buying a home makes the most sense if you intend to stay in one place for an extended period of time and have the financial means to do so.
However, you should consider your current life situation and whether or not it will change in the next few years. If it does, your housing needs may change, and you may want to postpone your home purchase.
For example, you and your long-term partner may have recently gotten engaged and intend to marry within the next two years. Buying may not make sense in this case. Perhaps you and your partner want to figure out how to combine your finances and develop a budgeting routine before adding a home to the mix.
Let’s say you and your spouse recently married and aren’t sure if you want to start a family right away. If you think you might want to have children soon, don’t buy a house that won’t be able to accommodate a growing family in a few years.
In both of these cases, renting may be a good idea so you can figure out what you want in a home, what your budgeting needs are, and what type of home might be the best fit for the lifestyle you hope to have in the future.
Weigh The Risks Of Renting And Buying
There are risks to consider when renting or purchasing a home. Although purchasing a home allows you to build equity, there are some financial risks. For example, if you sell your home sooner than expected, you may not be able to recoup your closing costs or renovation costs.
Let us not forget about the costs of home maintenance. These are expenses you’ll need to pay to keep the home in top condition. Consider air filter and vent cleaning, fire alarm testing, landscaping, and plumbing repairs, among other things.
If you have other priorities in life, such as a career that requires frequent travel or multiple young children, adding home maintenance to your list of responsibilities may not be the best choice.
Renting, on the other hand, means you will never have the opportunity to accumulate equity wealth. Your monthly rent could increase at any time. You are also at the mercy of your landlord, such as being asked to leave or dealing with maintenance requests that are postponed.
Assess Your Financial Situation
It is critical to remember that when deciding between renting and buying, you must be realistic about your financial situation. Once you’ve calculated the costs of renting versus buying, be honest about whether you can afford other upfront costs such as a down payment, repairs, moving expenses, and purchasing new furniture. Consider using our Mortgage Calculator to determine your monthly payments and how much house you can afford.
In either case, carefully plan your budget so that you can afford to buy or rent no matter what you decide.
Renting Vs. Buying A House: Pros And Cons
Aside from your personal circumstances, there are some objective advantages and disadvantages to renting and buying that will exist in most cases.
Renting Pros And Cons
Pros
- Mobility/freedom to move around
- Landlord pays for maintenance
- Doesn’t require expensive closing costs
- No fluctuation in monthly housing expenses
- Allows you to test-drive different living spaces
Cons
- You don’t build any equity
- Limited ability to customize your living space
- Rent could go up over time
- Landlord might sell or decide to stop renting
- Limited sense of home stability/permanence
Buying Pros And Cons
Pros
- You build equity wealth over time
- Home value may increase over time
- Unlimited freedom to customize your living space
- You may enjoy tax benefits
- Sense of home stability/permanence
Cons
- Closing costs can be expensive
- Responsibility for maintenance and repairs, which require time and effort
- Less flexibility to move (at greater difficulty/expense)
- Home value may decrease
- Recent tax laws potentially reduced tax benefits
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