Renting vs. Buying: Which is Best?
Are you on the fence about whether you should be renting or buying a home? You’re not alone. The answer isn’t the same for everyone. Fortunately, there are key indicators that can help guide you to the right choice. Long-term financial goals, current finances, personal preferences, and situational circumstances can all play a part in the decision-making process.
Financial Goals
Determining your long-term financial goals is a great starting point when deciding whether to rent or buy. Consider the following questions:
Is building equity important to you?
Equity is the value of a homeowner’s financial interest in their property. Therefore, if you own a home, you are building equity for yourself, but if you rent a home, then you are building equity for someone else. Having equity can be advantageous if you have additional financial goals like paying off debt or making a large purchase because it can qualify you for a loan, or additional purchasing power. Home equity has always been a hallmark of becoming financially solvent, and if that’s important to you, then it may be a good idea to purchase your own home.
Are you aiming to have a real estate portfolio?
Investing in a real estate portfolio refers to a collection of property assets owned by one entity, in order to build long-term wealth. If you plan to build a real estate portfolio, you have to start somewhere! Keep in mind the rental potential of your first home and go from there.
Will purchasing a home negatively impact other financial goals?
If you have other large financial goals, like paying off debt or purchasing a new vehicle, you may choose to prioritize those goals before allocating funds towards a home purchase.
Current Finances
What’s your current financial situation? Answer the questions below to guide you:
Do you have enough savings to cover additional costs of homebuying?
Beyond the initial costs of a home, homeowners are required to pay additional costs including a down payment, property taxes, and closing costs. In some cases, you may be eligible for mortgage down payment assistance programs, tax breaks, or be able to negotiate lower mortgage closing costs. Speaking with both a realtor and lender can help you find out what assistance is available. These costs add up fast, so make sure you’re prepared before starting the home-buying process.
Are you prepared to handle emergency repairs?
As a homeowner, you’re responsible for all home repairs. This includes dreaded big-ticket items like roof damage, broken HVAC systems, faulty appliances, and more. Are you prepared to handle these types of repair costs?
Is renting cheaper than a mortgage payment?
Consider the difference between monthly payments for a rental versus a mortgage. Especially in the case of starter homes, rental payments are likely to be cheaper than a mortgage payment. If a rental is more costly, you may want to assess whether purchasing a home would save you money each month. Given the volatility of rental rates and the housing market, it’s essential to reassess frequently to stay informed with the latest updates.
Personal Preferences
Strong preferences or non-negotiables may be a deciding factor in whether you should own or rent your home. Don’t forget about the following when considering your wishes:
Do you prefer the freedom of design choices?
If you prefer to have full control of home aesthetics, you may choose to own your home. If these things don’t bother you—renting may be a great choice! Design choices can include things like paint and fixtures. In many cases, rental tenants are not allowed to make changes to the property they live in. In some cases, minor changes are allowed, but typically, major changes are not—like flooring, landscaping, and structural changes.
Would you rather have a stable or flexible location?
How long do you plan to stay in one location? Owning a home is great if you plan to stay in a single location for at least 5 years. Renting is ideal if you plan to stay for a shorter amount of time. Oftentimes, rental leases are for a single year, with some six-month or month-to-month leases available as well.
Situational Circumstances
Everyone’s circumstances are different! Do any of these situations apply to you?
Rising Cost of Rent
Can you tolerate fluctuating rental rates, or would you prefer to lock in your monthly payment? Homebuyers have a set mortgage payment amount over the term of their mortgage loan. Renters, on the other hand, are subject to market price fluctuations.
Family Changes
Depending on your family’s needs, you may need more or less space to accommodate them in the future. Are you planning to grow your family, or are you getting ready for your grown children to move out? Are you a designated caregiver for a family member who may need to move in? If you foresee major changes in your future, it may be wise to rent in the interim.
Speak With a Lender
Ultimately, the choice between renting and buying a home is deeply personal and varies from one individual to another. By carefully considering your financial situation, future plans, and lifestyle needs, you can make an informed decision that aligns with your goals. Our expert team of mortgage lenders is ready to help you make the best decision for you and your family. Get in touch today to learn more!