There comes a time in every renter’s life when a decision must be made whether they should continue renting or if they should buy a home. There are so many factors to consider to make this decision responsibly, so we put together a comprehensive guide to help you make that decision.
Obviously a big factor is cost - if it wasn’t you would have already bought a house! When considering the cost of purchasing a home, you have to keep in mind the down payment, closing costs, mortgage payments, property taxes, possibly homeowners association fees and any surprise maintenance costs that may come up. To compare the costs of renting vs buying, apples to apples, only compare the costs that will change, so there is no need to include costs outside of the change in housing like internet, phone plans, cable, and any other costs that will stay the same. These are the monthly costs you should compare:
In addition to the monthly costs, you’ll have to keep in mind the deposit to rent compared to the down payment and closing costs to buy a home.
Of course money isn’t everything and the next big factor to consider when deciding to rent or buy is the comfort level. This depends on what you can afford to buy and what you are currently renting, so it is different for everyone. Some people may be renting a place nicer than they could buy or vice versa. Some aspects of the comfort level to consider are parking, location, space, number of rooms and bathrooms, kitchen, backyard and proximity to neighbors.
You might read this and think, what does the timing have to do with deciding to rent or buy? Well, it has a lot to do with it. If you are renting, you have the flexibility to move somewhere else for work or other reasons and break your lease or wait for your lease to end. If you purchase a home, you should be planning to live there for several years. Of course you could try to rent it out if you need to move, but most people buy a home with the mindset that they are settled with work and family and won’t be moving in the near future. Moreover, if you have kids or are planning to soon you should consider the schools in both areas and the safety of the neighborhoods for kids.
The housing and renting markets vary by location so this is something you’ll have to research to get a feel for. You should get familiar with the prices of homes in the area that you would be interested in buying (that you can afford to buy) and the cost of renting (if you don’t already rent that is). Read this article if you are unsure of how much house you can afford. In some areas of the US, like California it is much more affordable to rent than to buy the equivalent property. On the other hand, in many places in the US the cost of buying a place may actually be cheaper than renting the same place - this depends on your credit which we will discuss next.
Your credit will be a major factor in determining the interest rate you can get on a mortgage loan (which will change the monthly mortgage payments) so this is something you need to look into now. Poor credit can prevent you from getting approved for a mortgage and even approved to rent an apartment or house, but it usually doesn’t change how much you’ll pay each month for rent, as it does with a mortgage. Learn how to get your free annual credit reports and dispute any errors. Also learn about the factors that determine your credit score so you can start taking the steps today to improve your credit.
Aside from considering the cost of maintenance, which we discussed previously, something you should consider is actually performing or hiring someone to do maintenance. When you rent, if something breaks or leaks you can call your landlord or property manager and they will take care of it. When you own a home, you are responsible for maintaining the property. So you have to be willing to learn how to fix things or coordinate with repair people. It may seem like a small factor, but it will be a change of pace from renting.
Purchasing a home should not be considered simply getting a new form of housing, it is an investment. Investments should be well researched and the risks should be weighed. In this case, over time your property can either increase or decrease in value. It’s not possible to predict with certainty that a property’s value will appreciate due to market conditions, but you can learn about the indicators that a home’s value will increase to be prepared as you begin your home search.
Now that you’ve learned about the many factors to consider when deciding to rent or buy a home, take some time to think about it. Weigh the benefits and costs and talk to friends and family to get their take on it. This is a big decision, so you should treat it that way. If you decide to wait a year or two to buy a home, take the opportunity to make a plan to start saving for a down payment and closing costs. Alternatively, if you decide you’re ready to buy a home, you should learn about the requirements to get approved for a mortgage and the documents needed to apply for a mortgage.
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