To Rent or To Buy? That is the Question…

It’s a question that many have asked themselves: should I continue to rent or should I buy? Owning a home has long been considered part of the American dream, but how do you know if it’s right for you?

If you have a job that is pretty stable and you don’t have any immediate plans to move (for at least five years), buying a house can end up being much cheaper than renting. According to real estate portal Trulia, “nationally, buying with a traditional 20% down payment and a 30-year mortgage is 35% cheaper than renting.” And the longer you’re in your home, the more time it gives you to see a return on your investment. Remember, buying and selling costs money as well as time and energy, so you want to make sure you’re in it for the longer haul and not planning to pick up and move in a year.

Besides stability for the future, you also need to ensure you have enough saved now. Thanks to the Federal Housing Administration (FHA) mortgage, you can purchase a house for as little as 3.5% down. However, if you’re house hunting in a more competitive market, keep in mind that sellers might be more apt to select offers with higher down payments. In turn, a higher down payment (like 20%) will result in a lower monthly mortgage payment for you. Plus, unlike rent, a fixed mortgage can’t go up regardless of inflation.

However, there are other factors that can shape your decision. Here are some additional things to consider:

Renting

Pros:

  • You’re not financially responsible for maintenance. If something breaks, the landlord pays for it to get fixed.
  • You have the freedom to move in order to follow a new career path or an out-of-town love – you’re not locked into a long-term mortgage.
  • You can invest your extra savings or spend it on other ventures, rather than spend it all on a down payment.

Cons:

  • Landlords may be the ones that pay for repairs, but they can also do so on their timeframe. You don’t get a say in how long you wait for something to get fixed.
  • Your rent isn’t guaranteed at a fixed rate and your landlord can choose to raise it if they so please. Furthermore, they can kick you out if they decide to sell the property or rent to someone else.
  • When you rent, you can’t fully make a place “your own” without the fear of losing your security deposit.

Buying

Pros:

  • You’re investing in your future, not simply paying someone else. While you’re still making a payment each month, that money is going against your principal balance. At the end of your mortgage term, the property is yours. And if you decide to sell before that, you’ll likely still walk away with more than you started with thanks to the appreciation value.
  • You can benefit from tax deductions as a homeowner. You can deduct mortgage interest payments as well as eligible expenses (like the new solar panels you just had installed).
  • Want to change the paint color or remodel the kitchen? That’s totally up to you now – there are no landlords dictating what you can and cannot do with your space.

Cons:

  • Buying a house is one of the biggest purchases you will likely make. That can also mean a huge load of debt if your situation isn’t secure and suddenly goes south.
  • Becoming a homeowner usually means you’re tied to an area for an extended length of time. You don’t have the mobility to pick up and move somewhere else on short notice – especially if you haven’t lived in your house long enough to start to see a return on your investment.
  • Besides monthly mortgage payments, there are other expenses that pop up for homeowners. Water heaters break, pipes get clogged, and air conditioners die. While repairmen report directly to you, you are also the one that has to pay for it.

Still not sure? Check out Trulia’s handy rent or buy calculator. It takes into consideration your desired area, budget, income tax rate, etc. to help you figure out what makes sense for you.

Leave a Reply