Here are seven questions to ask yourself when determining whether buying or renting is best for you.
- How long do you expect to be in the home? The longer you plan to stay, the better off you are buying. That’s because buying and selling costs money and requires a significant amount of time and effort. If you plan to stay less than five years, you might want to rent instead.
- Would you be content if circumstances meant you had to stay longer? People who bought a “starter” home in 2005 thinking they could sell and buy a bigger home a few years down the road ended up stuck in homes that were worth less than they owed on their mortgages due to the housing crisis. Home prices are rising now, but there is no guarantee they will continue to rise.
- How stable are your job and your life? If you’re in a declining industry and your job is not secure, you may not want to lock yourself into a mortgage or a city. If you’re involved in a romance with an out-of-town love, or considering relocation for other reasons, you may want to rent. Buying a house and selling it a year later to relocate is likely to cost you some money.
- How do the monthly costs compare? Do some realistic math. Make sure you consider all the monthly costs of owning, including property taxes, insurance, homeowner or condo fees, lawn maintenance and other regular costs. Utility costs also may be higher if you buy, since many rents include water service and garage collection.
- Do you have savings for a down payment? It’s possible to buy a house with as little as 3.5 percent down payment with a Federal Housing Administration (FHA) mortgage. But in a competitive market, you may find sellers choosing offers with higher down payments and fewer contingencies. Plus, a higher down payment means a lower mortgage payment and no private mortgage insurance.
- Do you have savings to pay for repairs? All homes, even new homes, sometimes need repairs. Water heaters break, pipes leak and termites periodically drop by to wreak havoc on your home. Condo dwellers aren’t immune because they can face sometimes hefty assessments to pay for repairs to the entire building.
- Would you be better off financially if you spent the money elsewhere? If you spend your savings on a down payment for a home, that money is no longer earning money for you. Depending on how it’s invested, you might be better off financially renting and using your discretionary cash for investments. Consider the alternatives and do some math to determine which route is best for you.