Finding a home can be a long and arduous process. A person must decided whether renting or buying a home is the right choice for them. Although there is no set answer, there are several factors to take into account before you make your final decision.
First, have you saved enough for a home down payment? With banks requiring anywhere between 5% - 20% of the total home cost as down payment and the average price of a home in America being $341,000 that means you would have to have between $17,000 and $68,000 to put down on a home. Down payment requirements vary from bank to bank and your credit score will weigh heavily on them. Renting often only requires a security deposit of one to two months rent when signing a lease agreement.
Second, have you considered whether you can afford the ongoing expenses from a home ownership versus renting? Depending on where you live, your monthly rent might be smaller or larger than a mortgage payment. But when calculating your monthly expenses from homeownership, don’t forget taxes. You receive a tax deduction for the interest paid on the mortgage, but you also might owe property taxes. Include both. And, don’t forget the upkeep costs associated with home ownership that are required to maintain the house’s value. For the average home built before 1990, budget an additional $75 dollars per month for maintenance. For homes built after 1990, budget an additional $50 per month.
Third, how long do you plan on staying in the residence? If you have a job that requires moving often, it typically doesn’t make financial sense to purchase a home. Not only is your house resale price riskier over shorter periods of time, you often have to pay transfer taxes and other closing costs when you buy or even sell. Typically, renting is the better option if you plan to be in the house for less than five years. But, if you plan to stay in your home for at least five years, buying a home is a good option for building equity, assuming that the house price will likely at least maintain its value over time.
Fourth, lifestyle can greatly impact your decision to rent vs. buy. Often, rentals have strict rules regarding pets and offer less square footage. Also, rentals typically have rules on decorating and the number of people allowed to live in a rented property. Owning allows you to have more free reign over these decisions.
Renting may be a great way to get your feet wet for living on your own, creating a monthly budget and independence. But renting does not always make financial sense. It is important to take a step back, and look at all aspects of your life before making a decision.