Rent Vs. Buy: How To Decide In 5 Steps

Buying a home is undoubtedly a significant life decision, but is it the right one for you?

Of course, there is no one-size-fits-all option, as both renting and buying have pros and cons.

However, your personal finances play a significant role in your decision-making process.

Renting appears to be the most cost-effective alternative in most circumstances.

That isn’t always the case, though.

Lifestyle issues, such as whether you want to be free or stable, what your job goals are, and whether you want a place you can truly call your own, can all play a role in your decision.

If you’re on the fence about whether to rent or buy, keep reading to learn what you should think about before making a decision.

Rent vs. Buy: How to Decide

1. Determine how long you intend to stay in the same location. 2.

To put it another way, do you want to plant roots in your community or do you want more flexibility?

Buying a home may make sense if you are positive you will stay in it for at least 5 years.

That’s because it could be a wonderful fit both financially and emotionally, as you can add personal touches to make your house seem truly yours.

If you wish to be more nomadic, though, renting is the preferable alternative.

Let’s say you’re adamant about getting that job promotion, but it’s halfway across the nation.

You don’t want to have to deal with the stress of selling your home while looking for a new job.

Perhaps you’ve recently relocated to a new location and want to spend some time getting to know the different areas before settling down.

You can buy a house and then sell it in a few years, but the costs are too high.

Besides the costs of closing and moving, you may also have to pay for things like repairs and renovations that help the house sell for a good price.

2. Determine the cost of renting versus purchasing.

Because of the upfront fees, renting can often be less expensive than buying a home.

A down payment, closing charges, moving costs, any improvements, and other property upkeep activities are all included.

However, just because you can afford a mortgage payment does not guarantee you can afford a home; costs add up quickly.

You’ll have property taxes, homeowners insurance, and (in many cases) mortgage insurance, as well as homeowners association (HOA) fees, in addition to a monthly payment that exceeds the principal and interest on your mortgage.

Buying a home, on the other hand, can save you money in the long term and allow you to create equity.

When you sell your home, hopefully its value has increased.

Buying a home is much less expensive in most locations in the United States.

According to research by the National Association of REALTORS®, a homeowner’s mortgage payment is lower than a renter’s after six years.

This assumes that the rent increases by 5% per year and that the homeowner pays a set monthly payment.

Being a homeowner can also save you money on taxes, though due to recent tax changes, you may be limited in how much mortgage interest, state and local property taxes you can deduct.

According to the same data from the National Association of REALTORS®, a homeowner’s payment will be less than a renter’s monthly payment after three years, according to the same data from the National Association of REALTORS®.

That’s not to mean you should jump into homeownership right now.

If you’re focused on owning a home, it’s absolutely OK to rent for a few years, save up, and then buy.

The cost savings of becoming a homeowner are based on the assumption that you will stay in your home for a long time and may not include maintenance costs.

However, even with home upkeep costs, if you pay off your mortgage and continue to live in the home, the savings can be significant.

3. Which is more important to you, mobility or establishing roots?

It’s difficult to foresee what will happen next in your life, even with the greatest of intentions.

Buying a home may make the most sense if you want to stay in one place for a long time and have the financial resources to do so.

However, it’s critical to assess your current life position and consider whether or not it will change in the next few years.

If this happens, your housing demands may alter as well, and you may wish to put off buying a property.

For instance, you and your long-term partner may have recently become engaged and intend to marry within the next two years.

Buying may not be the best option in this scenario.

Before buying a house, you and your partner might want to figure out how to combine your finances and establish a budgeting regimen.

Let’s imagine you and your partner recently got married and aren’t sure if you want to start a family right now.

If you think you might want to start a family soon, don’t buy a house that won’t be able to handle a growing family in a few years.

In each of these circumstances, renting may be the best option so you can figure out what you want in a home, what your budgetary needs are, and what kind of property would be the best fit for the lifestyle you want to have in the future.

4. Compare the Advantages and Disadvantages of Renting vs. Buying

Both renting and buying a property have dangers to consider.

While buying a home might help you develop equity, it also comes with some financial hazards.

For one thing, if the real estate market in your area declines, you could lose money.

If you sell your house sooner than you thought, you might not be able to get back your closing costs or renovation costs.

Not to mention the cost of home upkeep.

These are costs you’ll have to pay to keep the house in good shape.

Checking air filters and vents, testing fire alarms, gardening, and repairing plumbing problems are just a few examples of fixes.

Adding house upkeep to your list of chores may not be the best choice if you’re focused on other life goals, such as a job that demands frequent travel or if you have many young children to care for.

Renting, on the other hand, implies you won’t be able to create equity the way you would if you bought a home.

Your monthly rent could increase at any time.

Another thing that could happen is that your landlord would like you to leave or put off making repairs.

5. Take stock of your current financial situation.

It’s vital to remember that while picking between renting and buying, you must be realistic about your financial condition.

After you’ve calculated the costs of renting vs. buying, be honest with yourself about whether you can afford extra upfront costs like a down payment, repairs, moving expenses, and purchasing new furniture.

Use our Mortgage Calculator to determine how much house you can afford and your monthly payments.

In either case, make sure that you can afford to buy or rent whatever you choose.

What Are the Benefits and Drawbacks of Renting vs. Purchasing a Home?

There are some benefits and drawbacks to renting and buying that aren’t based on your personal situation. In most cases, these will be the same.

The Benefits and Drawbacks of Renting

Pros

Mobility (or the ability to move around) is a term used to describe the ability to move around.

Maintenance is paid for by the landlord.

It does not necessitate high closing fees.

There is no change in monthly housing costs.

It allows you to try out various living spaces.

Cons

You won’t be able to build any equity.

You won’t be able to modify your living area as much as you’d like.

Rent may rise in the future.

The landlord may decide to sell or discontinue renting.

There is a lack of stability and permanence in the home.

The Benefits and Drawbacks of Purchasing

Pros

Cons

The cost of closing can be expensive.

Maintenance and repairs, which take time and effort, are your responsibility.

less mobility (at a higher cost/difficulty level).

The value of your home could plummet.

Recent tax legislation may limit tax benefits.

Rent vs. Buy Calculator

Whether renting or buying might save you more money depends on a few crucial criteria.

The first is your location, as well as the pricing of similar homes or rentals in your region.

Next, think about your credit score and whether or not a lender would consider you creditworthy.

Compare the monthly cost of rent to the monthly cost of a property after factoring in the purchase price, down payment, and closing charges, as well as a monthly mortgage cost over time.

You’ll be able to look at the different costs and how much equity you’d build up in a home.

You can use the Rent vs. Buy Calculator to determine whether buying or renting makes more sense for you.

Final Thoughts

When it comes to deciding whether to rent or buy, there isn’t always a simple solution.

The answer may change over time, depending on your personal circumstances and financial status.

There are other choices, such as a rent-to-own property, where you start out as a renter and then progress to homeownership.

Whatever decision you make, make sure it’s well-informed and based on your financial and lifestyle circumstances.