Deciding on whether or not to buy a home is probably one of the first major decisions you will make in your adult life. Maybe your friends are starting to purchase homes. Your parents might be encouraging you to build equity through a home purchase. But is it right for you?
There is no easy answer to whether you should rent or buy. It depends on many different factors like your financial situation, your plans for the future, the location you want to live, the current housing market... just to name a few. Traditionally, home ownership has been the measure of financial success, but as the housing crisis in 2008 showed, overextending to buy a home can have disastrous consequences. Let’s take a look at a few things to consider when deciding whether to rent or buy a home.
First, the amount of time you plan to stay in your home is an important factor. If you’re planning to move within the next few years, it may not make sense to purchase a home as there is a “breakeven” point where it’s cheaper upfront to rent than to buy. Why? Buying a home requires significant upfront costs like a down payment, closing costs, furnishings, and possibly renovation or remodeling costs. If you’re in it for the long haul however, buying may be the better option.
As stated above, home ownership comes with (a lot of) added costs. Besides the upfront costs, there are continuing costs such as maintenance, home insurance, private mortgage insurance (PMI- if you put less than 20% down, which we do not recommend) and property taxes. Granted, there are many upsides of owning a home- building equity, appreciation, tax benefits- but it’s important to be able to take on the additional costs as well.
The psychological and emotional factors of home ownership can be taxing (no pun intended) if you’re not ready. Perhaps you don’t have time to pull weeds or fix leaky faucets. Maybe you’re focused on your job or want to travel and have some flexibility. Taking over the responsibilities of owning a home may not make sense at this stage in your life.
Deciding on whether it’s better to rent or buy is not an easy decision, nor is it one you won’t encounter a few times in your life. Honestly assessing your current situation is the best way to make an informed decision.