Renting vs. Buying a HomeOctober 20, 2016
In the past, becoming a homeowner was regarded by most as a long-term goal and benchmark for financial success. However, with the cost of owning a home on the rise, according to a recent Bloomberg article, the national homeownership rate has dipped to its lowest since 1965. Renting is now seen as a more feasible and smarter financial decision for many, especially millennials and individuals in their mid-to-late 30s. Still, those seeking to buy or rent a home want a clear-cut answer as to which is the better option, but it is not that simple — there are many factors to consider. If you are currently weighing the pros and cons of buying a home versus renting, consider these factors in making the housing decision that is right for you:
- Your Numbers
As with any large financial decision, it is important to assess your budget and overall financial situation to determine what you can afford to pay for your housing. A great rule of thumb to follow is the 30 percent rule, which states that your housing costs should not exceed 30 percent of your income. With that, you need also consider your other monthly obligations — such as health insurance, student loans, auto expenses, food, clothing, utilities, etc. — when budgeting an amount you are comfortable spending on housing each month. One mistake many people make when deciding whether to rent or buy a home is comparing monthly rent payments to mortgage payments. There are several additional liabilities that come with homeownership, like property taxes, monthly maintenance costs, and homeowner’s insurance, that factor into the monthly payment. Gauging every potential financial obligation that comes with purchasing a home, versus renting, can help you get the most accurate estimation of what you can afford.
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- Your Area
Depending on the area you are looking at, the costs of renting and buying a home can differ. In some areas, renting is the cheaper option because purchasing a home is simply too expensive. However, in other areas, the cost of purchasing a home may be lower than monthly rent. Try using this calculator from Realtor.com — it will show you the cost of renting versus buying a home, based on your area.
- Your Future Plans
One of the main advantages of renting is flexibility. With a mortgage, you are more “tied down,” which means it will be harder to move, if needed, due to the obligation of selling your home beforehand. Renting is more beneficial for those who knowingly plan to move in the near future, as renting affords more mobility in the event of major life changes like marriage or new jobs in different areas. On the other hand, if you foresee yourself staying in the same place for a while, purchasing a home may be the right move for you.
- Other Important Factors
Along with considering your finances, area, and future plans, there are other components of renting and buying a home that may be important to you. With owning a home comes more customization — you are free to paint the walls, add a room to the house, replace the carpet with hardwood flooring, and whatever else you see fit. Renting can be more restricting. Maintenance is another factor to consider. When you own your own home, you are entirely responsible for the maintenance of your property, and cannot simply call a landlord to make repairs, as you could with renting. One last thing to consider: Until you fully own your home, it is technically owned by the bank; thus, you are susceptible to foreclosure and completely losing your home if you fail to make mortgage payments.
Decide What is Right for You
Deciding whether to buy a home versus renting is a complicated decision. With all the factors involved, it is impossible to simplify. In some situations, it can be smarter to rent, while other situations and times may prove that purchasing a home is more favorable. Ultimately, the correct decision is the one that is right for you.