Deciding whether to rent or buy is a huge decision. It is not as simple as finding a house you like and buying it. There’s a lot of responsibility that comes with buying a home, and if you have always rented there are a number of things that you might not realize that go into owning a home.
While many people see owning a home as a sort of rite of passage in their adulthood, buying a home may not be the right decision, depending on your circumstances. If you have a child, then there is a chance that you are better off handling just rent payments instead of a mortgage. On the other hand, you may want to start investing in your family, so a home purchase seems like the ideal choice. It is a dilemma for good reason.
To decide whether owning or renting is right for you, you need to consider your finances and your lifestyle to see what will work best for your situation. Let’s take a look at some things that will affect your decision to rent or buy.
If your credit score is high, you will have an easier time getting prequalified for a loan (which will make you more attractive to sellers). It could also lead to getting better interest rates on your loan, as well. That means more money in your pocket over the long haul.
If you find your credit scores aren’t stellar, it may be better to rent for a couple years to build up your score rather get stuck with higher interest rates or a loan with terms that are unfavorable.
A mortgage calculator can help you determine what your monthly payments will look like depending on the amount of your mortgage, the length of your mortgage, and the interest rate.
Using the calculator, you can decide if mortgage payments will fit in your budget or if you want to work on building your credit score so you can get a lower interest rate in the future.
Another thing to consider when deciding between renting and owning is how long you plan to live in that exact place.
If you are planning to be there short-term -- less than five years, generally -- renting may be the better option. Closing costs associated with buying a house are substantial, but they’re often overlooked. If you aren’t prepared to stay a while, closing costs alone could be a large chunk of change you would be better off saving.
If you don’t know where you’ll live in five years but you’re still thinking about buying, then consider what you’ll do when it’s time to leave. You’ll either have to sell the house and do all the things associated with that, such as listings and showings, or you’ll hang onto it and use it as a rental property. There are pros and cons to either scenario, so do some serious research to decide whether home ownership really is right for you at this time. It may be that you just need a year or so before you’ll know your long-term plans.
On the flip side, owning a home can be a great investment if you are planning to stay a while. Your house will build equity, plus if the housing market in your area is strong, you have the potential to make money on it when you sell.
The thing to keep in mind if you’re taking on a mortgage is to be conservative. You don’t want to fall victim to a housing bubble and be “underwater” on a mortgage you can’t afford because you stretch yourself too thin.
When you rent, unless otherwise agreed upon, your landlord will be in charge of making sure everything is taking care of and fixing anything that breaks. You also won't have to pay for repairs, which will allow you to keep your money in your pocket instead of tying it up in the home.
Depending on your situation, you possibly also won't have to worry about mowing the yard in scorching summer days, and you will be able to sip hot chocolate while someone else takes care of shoveling.
All of the upkeep of the house as well as the outside maintenance is your responsibility when you own. Mowing, snow shoveling, fixing repairs are all tasks that fall on you, even if you hire them out. A home warranty may alleviate some of the risks and major expenses, but that still costs some money. You will also be responsible to pay anyone who comes, so consider making sure you will have the funds available should an emergency occur.
While the responsibility of a house can be a drag, the upside to owning your home is that you have a lot of flexibility in terms of how you want your house to look, and you can change things according to your taste. You can remodel, repaint rooms, or even put on an addition. All the decisions about the interior and exterior are yours, and you can put your stamp on your home however you’d like.
Renting will allow you little control over your environment. Most places won't let you even change the color of your walls. If you are someone who doesn’t put a lot of emphasis on things like wall color, this won't be a big problem for you… but many people do want to have their home’s interior done up to their preferences.
Also keep in mind that a rental place can't grow with you. If family changes are in the foreseeable future, make sure the place you are renting will accommodate those changes. Otherwise you’ll need to relocate, and no one likes moving unnecessarily.
Renting versus buying is a big decision, especially if you have never bought a house before. Be sure your financial position is strong enough to support a mortgage and all the upkeep home ownership requires. Ultimately you need to look at your lifestyle and weigh the pros and cons of each option to see what makes the most sense for your life.
The “American Dream” is great for many people, but it’s not for everyone. Make your decisions based on your own life, and have confidence that you’re doing what’s best for you.