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Couple discussing housing in the kitchen.

There’s no doubt that buying a home is a major life decision, but is it right for you? Of course, there’s no singular correct answer as there are pros and cons to both renting and buying. A major factor in anyone’s decision-making process comes down to finances. In most cases, renting seems to be the more affordable option.

However, that’s not always the case. Your decision can boil down to several lifestyle considerations such as whether you want flexibility or stability, what your career goals are and whether you want a place to truly call your own.

If you’re on the fence about whether you should rent or buy, read on to find out what you need to consider before taking the plunge.

Renting Pros And Cons 

PROS

  • Mobility/freedom to move around
  • Landlord pays for maintenance
  • Doesn’t require expensive closing costs
  • No fluctuation in monthly housing expenses
  • Allows you to test-drive different living spaces

CONS

  • You don’t build any equity
  • Limited ability to customize your living space
  • Rent could go up over time
  • Landlord might sell or decide to stop renting
  • Limited sense of home stability/permanence

Buying Pros And Cons 

PROS

CONS

  • Closing costs can be prohibitive
  • Responsibility for maintenance and repairs which requires time and effort
  • Less flexibility to move (at greater difficulty/expense)
  • Home value may decrease
  • Recent tax laws could hamper tax benefits

Rent Vs. Buy: How To Decide In 5 Steps

1.  Decide How Long You Plan To Live In The Same Place

In other words, are you planning on putting down roots in your community or are you craving more flexibility?

If you feel certain you’ll stay in a home for at least 5 years, buying a home could make sense. That’s because it could be a good fit both financially and emotionally – you can put personal touches on your home and really make it feel like it’s yours.

However, renting is the better option if you prefer to be more nomadic. For example, let’s say you’re really hoping to get that job promotion but it’s halfway across the country. You don’t want to have to deal with the hassle of selling a home while transitioning to a new position. Or perhaps you’ve moved to a new area and want some time to get to know different neighborhoods before settling down somewhere.

Sure, you can buy a home and then sell it within a few years, but the costs are hardly worth it. Aside from initial closing and moving costs, you may be paying more closing costs when selling a home in addition to other costs such as repairs and renovations that would make the house sell for top dollar.

2.  Estimate The Cost Of Renting Vs. Buying

In many cases, renting can be cheaper than buying a home because of the upfront costs involved. This includes a down payment, closing costs, moving costs, any renovations and other home maintenance tasks.

That said, just because you can afford a mortgage payment doesn’t mean you can afford a home; expenses add up. In addition to a monthly payment that’s more than the principal and interest on your mortgage, you’ll also have property taxes, homeowners insurance and (in many cases) mortgage insurance as well as homeowners association fees.

 

On the other hand, buying a home can be cheaper in the long run and it offers you an opportunity to build equity. (Hopefully, your home will increase in value when you sell the home.) In most areas of the U.S. buying a home is actually cheaper according toa National Association of REALTORS® report that  shows that after 6 years a homeowners mortgage payment is lower than that of a renter. This is assuming the rent has a 5% increase each year and the homeowner is paying a fixed monthly payment.

 

Not only that, but there are tax savings to being a homeowner. (Though with the recent tax changes there may be limits as to how much mortgage interest, state and local property taxes you can write off). But according to the same report from the National Association of REALTORS® a homeowner’s payment will be less than a renter’s payment after 3 years.

 

That’s not to say you should dive right into homeownership. It’s perfectly fine to rent for a few years, save up and purchase a home if you’re dead set on having a place of your own. The savings in costs of being a homeowner also assume you’ll stay in a home for the long term and may not factor in maintenance costs. However, if you do pay off your mortgage and continue to live in the home, the savings can be significantly cheaper even with home maintenance costs.

3. Mobility Vs. Putting Down Roots: Which Is More Important To You?

As cliché as it sounds, life happens. Even with the best of intentions it’s hard to predict what can happen next. If you intend to stay in one place for a long time and have the financial means to do so, buying a home may make the most sense. 

However, it’s important to take a look at your current life situation and think about whether or not it’ll change within the next few years. Because if it does, your housing needs could also change (i.e., you may want to hold off on buying a home). 

For example, you and your long-term partner may have just gotten engaged and plan on getting married in the next 2 years. In this case, buying may not make sense because you two want to figure out how to combine your finances and work out your budgeting routine before adding a home into the mix.

Or let’s say you and your spouse just got married and you aren’t sure if you want to start a family quite yet. If you have any inklings that you might want to have children soon, you shouldn’t buy a home that’s not going to accommodate a growing family in a few years.

In both these cases, it might be a good idea to rent for the time being so you have time to figure out what you want in a home, what your budgeting needs are and what kind of home might be the best fit for the lifestyle you hope to have in the future.

4. Weigh The Risks Of Renting And Buying

As mentioned above, there are risks for both renting a buying a home. Although you can build equity when buying a home, there are some financial risks. For one, you could lose money if there’s a downturn in your local real estate market. Or, if you sell your home sooner than you want, you may not be able to make up for what you spent in closing costs or renovations.

Let’s not forget maintenance costs. These are expenses you’ll need to pay to keep the home in top condition. Think checking air filters and vents, testing fire alarms, landscaping, fixing plumbing issues, among other things.

If you’re focused on other things in your life like a career that requires you to travel often or you have multiple young children to attend to, adding home maintenance to your list of responsibilities may not be the best choice.  

On the flip side, renting means you won’t have the opportunity to build equity like you would with buying. Your rent could go up at any given moment. You’re also at the mercy of your landlord, such as being asked to move out or having to deal with maintenance requests being deferred.

5. Assess Your Financial Situation

It’s important to note that you need to be realistic about your financial situation when deciding between renting and buying. Once you estimate the costs of renting versus buying, be honest about whether you can afford other upfront costs like a down payment, repairs, moving costs and buying new furniture. Consider using a mortgage calculator to estimate your monthly payments as well as how much home you can afford.

In either case, do some careful budgeting right now so no matter what you choose you’ll be able to afford a home or rent.

Rent Vs. Buy: Some Final Thoughts

There isn’t always a clear answer to the question of whether to rent or buy. Depending on your life situation and finances, the answer might change over time. There are other options such as rent-to-own property where you start out renting then move onto becoming a homeowner. No matter what decision you make, it’s crucial you make an informed decision based on your financial situation and lifestyle. 

If you’re ready to begin the home buying process, you can get started online with Rocket Mortgage® or call (800) 785-4788today.  

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This Post Has 4 Comments

  1. Thinking of building in spring ‘2020. We just sold our residence of 26 years. We also own a home in another state. Trying to decide whether to remrtg other home to pay off bills, but worried credit check will hurt new mtg. Inquiries In spring.

    1. Hi Carla:

      While hard inquiries stay on your credit for 2 years, the FICO® formula only takes into account hard inquiries made in the last year. What I can’t answer for you is how much your credit score will be impacted because it varies from person to person. Keeping that in mind, if you have a more extensive history with good payments, the inquiry will affect you less than if you have blemishes on your report. If you would like to talk more in depth about this, I recommend going over the alternatives with one of our Home Loan Experts at (888) 980-6716.

  2. We have our mortgage with you. We have a VA loan. Would it be advisable to buy another home and rent out to our Daughter and Son in law. My husband is 85 and I am 74 he is a veteran and still can get a home on his VA,. That is if we are not to old.
    Clarence & Margaret Boyd We love reading your emails to us. Thank you.

    1. Good morning Margaret and Clarence:

      I’m going to have one of our Home Loan Experts reach out to you and check into this for you. Thanks for being amazing clients!

      Thanks,
      Kevin Graham

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