Updated: Sep 5
Updated post: 9/5/23 - Original post: 6/15/22
Click the image above for access to the USA Facts county by county interactive of rent increases
Deciding on a buying or renting a house is one of the biggest decisions anyone makes in their life. It is typical for newly married couples to go ahead and purchase their first home. Purchasing a home is a great way to build financial wealth and set yourself up for the future. However, buying a home is a huge financial endeavor and right now, the housing market is very expensive.
Instead, renting is a great alternative option due to the flexibility. If you move around a lot for a job, renting could be the way to go. Often renters feel their money is going to waste and could be going towards equity in a house. That is not necessarily true, and it sometimes can be the better decision.
So, which is the best option for you? There are benefits and drawbacks to both buying and renting. In this article, we will discuss some key factors to consider and hopefully provide some clarity.
Buying or Renting: Timing
Before deciding on whether to buy or rent, consider your life currently. Do you see yourself living in the same location for a long time? Are you planning or currently have kids? Do you have a stable job in that location?
Stability in life is key before buying a home because of how big a commitment it is. Mortgages last 20 to 30 years and selling a home after a few years can be very risky.
For young couples, there is a lot of pressure from society to immediately buy a home. There is no problem with renting for a few years and moving somewhere else until you find the right spot.
If you are moving for a job, renting is okay, if you are unsure the new location is where you want to be.
Another factor is the housing market. Currently, in 2022, the housing market is hot, and homes are overpriced.
There is a shortage of homes for sale, and we are in a buyer’s market due to the historically low rates (although they are now on the rise).
You do not want to burden yourself financially by paying for a home that is out of your price range.
Everyone has a list of what they want in a home. Do not settle for a home that does not fit your needs just to own a house. Renting allows you to get everything on that list and save money initially.
Renting until the housing market is affordable is a very popular choice. It also gives you more time to save up for a down payment and closing costs, as well as improve your credit score.
If you want to buy a home, you should feel like you are going to be there for a while. Do not feel rushed to buy a home, make sure your priorities are in line first and the timing is right.
Buying or Renting: Financial Costs
A crucial step financially is knowing your price range. Figuring out what you can afford can make the decision to buy or rent much simpler.
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One of the worst scenarios to be in is buying a home you like and not having a way to pay for it. That is why understanding your finances is important.
When saving up for a home, a large chunk of the cost is front-loaded. The down payment and closing costs are very expensive.
Spending all your savings on the upfront costs leaves you very vulnerable financially. Having savings left in case of an emergency is always a good idea.
After the hefty initial costs, you should be able to afford a monthly mortgage payment, taxes and insurance, and utilities.
Homeowners' insurance is costly compared to renters’ insurance. With some homes, there are HOA fees, and you have to consider property taxes too. All these extra expenses add up and can seriously impact one’s budget.
Buying a home is an illiquid purchase. Meaning when the economy tanks, it is very hard to sell your home when you need the money because everyone else is trying to.
If you cannot afford the upfront costs or mortgage payments, renting a home is a cheaper option initially.
The security deposit is way less than a down payment. Renter's insurance is a fraction of the price of home insurance. Utilities still need to be paid, but there are no maintenance costs.
Renting is good while you save up money to buy a home. However, if you rent for a long period of time, you may end up spending more than the cost of a home.
Both are great options; it all depends on your financial situation and goals in life.
Buying or Renting: More than a home
Deciding on the physical house is important, but for some, the location is just as important. Do you want to live in the city or out in the suburbs or somewhere rural? Is having a backyard enticing?
You can love the physical home all you want, but if the location is not right, you may end up moving after some time.
If you commute to work, how long do you want to be in the car? Or if you work from home, that is not even a consideration.
Before you purchase or decide to rent a home, check out the community life. Look to see what restaurants, stores, or attractions are around.
For families with kids, or couples planning on becoming parents, schools are an important part of home buying.
The quality of the school is going to be dictated by the school district you live in.
Do your research and ask around to see if the schools in the area are good for your children. The school comes with the purchase of a home.
Finally, look into how safe and quiet the neighborhood is.
Buying or Renting: Pros and Cons
Investment: Your house will become equity once you pay off your mortgage and the property value increases.
Tax benefits: Property taxes are deductible as well as the interest on your mortgage.
Full ownership: Finally, the house is completely yours and you can do whatever you want with it. You have the power to renovate your home unlike renters
Responsibility: If something breaks or goes wrong in the house, you are responsible for fixing that issue. There is no landlord to take care of repairs.
Commitment: It is a hassle to move and selling a home is not easy. Once you purchase, flexibility goes out the window.
Flexibility: Not committed long term and no house to sell before you move.
Lower Expenses: No property taxes, cheaper insurance, fewer additional fees.
Maintenance: The landlord is responsible for any repairs or issues in the home.
Rent can increase: The rent is up to the landlord, and you do not know what rent in the future will look like.
Lack of Equity: The money you pay is not going into an investment in a home. Instead, it is going straight to the landlord.
Interactive and Calculator: Is it Better to Rent or Buy?
Deciding whether to buy or rent a house is a very stressful decision. There is no “right” answer, it all depends on your situation. If you saved up enough money and can see yourself staying in one spot for a while, then buying a home might be for you.
If you like to move around a lot, have a job that requires travel, or cannot afford it, renting is a very viable option.
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