When weighing major life decisions, everyone seems to have the answer. You should marry this person, drive that car, and have so many kids – all by a certain age. Never mind if it’s actually the best choice for you! Home ownership is no different. Deciding between renting or buying always comes with a generous helping of opinion. So how do you know what’s really best for you? Here are few questions to ask yourself that will help you decide:
Which Costs More?
Nationally, home values are expected to increase by about 5.3 percent over the next year. Rents are going up much faster, 5 to 6 percent a year on average, though gains in some parts of the country like Fort Myers and Naples in Florida are close to double those rates. Add to that the fact that mortgage rates are as low as we’ve ever seen them and renting tends to be pricier than buying in most metro areas. When you add together your mortgage principal, interest, insurance and taxes, you can pay less than you would be renting a comparable home!
There’s also the worry about rent being increased over time whereas if you buy and get a fixed-rate mortgage the largest part of your housing payment is never going to change! That’s Why so many people value “home ownership” as a lifestyle choice they want to make.
What's Your Timetable?
Timing is a very big consideration. Not only can closing and moving costs erase the advantages of buying, but you also need to give yourself enough time to recoup your investment if housing prices stagnate.
So how long is long enough? The old rule of thumb was that you needed to be in a place for at least three years to overcome the costs of purchase but in today’s time most people are now thinking a five-year time horizon is closer in most places. It really depends whether the local market is seeing appreciation.
Are You Relocating to a New Area?
We’ve all heard the story about the friends who dreamed of moving to Dallas or Boca or (insert your own fabulous destination here), and hated it when they got there so they hightailed it back. It happens, but it doesn’t have to happen to you! If you’re moving to a new city, it might make sense to rent initially. Get active, get involved, and try out the new locale. You may not know what neighborhood works best for you yet, so a short term rental will give you a much better idea of your desired location. More than that, it’s very expensive to change your mind after you buy! Why not try a sample before purchasing the whole entree, right?
How's Your Cash Flow?
Another consideration is your income stream and whether it’s steady or volatile. If you’ve got an income stream that’s more unpredictable, locking into a long-term arrangement like a mortgage payment is not the best idea. You CAN accommodate volatile income with a rental and you can also do it by purchasing less house than you know you can afford (thereby giving yourself some wiggle room).
Freedom or Control?
This is the last question to consider, and it’s an important one! Being a renter has its advantages. The landlord is responsible for fixing many issues and handling much of the month-to-month maintenance. You are free from those challenges, just as you are free to leave at the end of your lease. On the other hand, as an owner, you have more responsibility but you also have control over your space. You want to install a sound system or ceiling fans? You want to paint the front door red? No problem! It’s very much a personal choice.
Deciding if you want to purchase a home isn’t an easy choice to make. This is why it’s best to educate yourself, keep an open mind, and navigate all of your options. Renting offers great flexibility and mobility in the event of an unexpected life-changing event, while home ownership offers a chance to put down roots and invest! Simply weigh out the pros and cons list and make the best decision for you.