We’ve all heard this question at one point or another: “Is it better to rent or buy a home?” Well, it really depends on who’s asking. If you are trying to do decide what’s best for you, consider the following questions before making your move.
Believe it or not, the decision to buy or rent is both a lifestyle and economic decision. Think about it, if you are in your 20s to early 30s, odds are you are still getting your foundations set. Life could take you anywhere, really. But if you were to buy a home, your future career options could be limited if you aren’t willing to sell, pick-up, and move. Even if you were, it could be a lengthy process, so renting may be the safer option. When evaluating your circumstances, consider your age, overall stability, and whether or not mobility is something you will need.
On the other hand, perhaps you are already stable in your career, and you’ve built up some savings. Maybe you’re even ready to start a family. Whatever the case may be, your age is still will play a factor. If you buy young, you will have more time to build up equity, and there’s even the potential for tax benefits and rental income. Additionally, if you are planning to live in a home for five-ten years or more, buying could certainly be cheaper in the long run. All that being said, you have to do the research to determine what makes the most sense for your circumstances. The decision to buy or rent is not a one-size-fits-all situation.
Buying can be an amazing investment in the long-term, but it does depend on where you live, and how long you plan to stay in your home. If the horizon looks bright, double-check the price-to-rent ratio for your area (the purchase price of a home divided by the annual rent of a similar home). Generally, a ratio of 15 or under favors buying over renting.
Lets say you’ve now done your research, and you’ve determined that buying is the best route for you. The next step would be to evaluate your financial situation. Even with enough saved for a down payment, will it allow you to bear the immediate financial impact of buying a home? Besides property taxes, insurance, and homeowner association fees, you will have to account for furnishing your home, higher utility costs, and maintenance and/or repairs.
In addition, you may want to consider if you will have an additional six months’ minimum worth of savings to cover unexpected costs that could come with losing a job, or having a medical emergency. Will you have enough left each month to enjoy small luxuries, or will you have to dramatically adjust your lifestyle? If you can cover these costs comfortably with some financial cushion (and still have some leftover to save every year), then buying could be for you.
Once you’ve determined your stability, local market, and finances, and you find that buying makes the most sense for you, go for it! If you think you need a few more years to save up for those initial costs and/or to have some more financial cushion, continue to research! Be sure to stay up to date on the market so that when you’re ready, you can jump right in. If the math just seems like it would never add up for you, there are plenty of advantages to continuing to rent. Regardless of your decision, you should feel great knowing you are doing what’s best for you!