The decision to rent or buy a home doesn’t come easy for all of us. There are quite a few things to consider when deciding which route to take, and each of them differ from person to person.
So while all of your friends may find themselves in a spot to purchase their first home, perhaps your situation is different—and that’s okay. Here are a few factors to help you decide if buying is your best option, or if renting is a better idea for now.
We don’t all have matching bank accounts. By identifying just how much money you can afford to put toward a home, you can decide if you are financially stable enough to make the purchase. We’re not just talking mortgages, either. Taking out a home loan means you need good credit and you need to consider other costs like HOA fees, repairs and maintenance, insurance, closing costs, and moving expenses, too.
Be smart with the money you’ve earned. That emergency savings fund you set up to take care of you and your family was a good idea. Just make sure you’re not using it to put more cash toward a down payment—that money is for emergencies only!
If you don’t have a substantial savings set aside for all the costs of home purchase and ownership plus an emergency fund that can cover three to six months of living expenses, renting is the wiser choice.
Location for short and long term
No matter how nice the house is, its location truly matters. Is it too far from work? Will your kids have to change schools? Is it close enough to family or friends? You should also think about how much space you really need; a larger house can mean higher taxes. Consider the next 3-5 years. If you can’t see yourself in the area for that long, then renting is probably a better option for now.
If you have a dream neighborhood in mind, research the average price of homes there and take 20 percent of that number as your hypothetical down payment. If that amount is too high for you to realistically afford, then you may have to look for a place elsewhere—or save up for a few years while renting in the meantime.
Investment pros and cons
As you consider your personal situation when looking for a home, you should also think of the investment opportunity that buying a home can be. A home in the right area can increase in value over time, which could mean a nice payday if you choose to sell down the road. But choosing the wrong house can mean throwing good money after bad. If you do some thorough research, you can minimize the possibility of getting stuck with a money pit of a home.
And if you’d rather leave the responsibility of repair and maintenance to a landlord—along with retaining the ability to make a quick and easy exit—then renting can give you a little more peace of mind.
With growing pressure to settle down and buy a house, it’s easy to get carried away. But with some careful consideration of the advantages and disadvantages of renting vs. buying, you can make an informed decision that’s right for you.