Perhaps you’re just graduating college and are out on your own for the first time. Or perhaps you’ve recently had a lifestyle change and you need to relocate, upsize or downsize. Whenever the time comes to change your living situation, you may wonder if it’s in your best interest to rent or buy your next home. Read on for some tips to assist you in the decision-making process.
1. What can you afford?
One of the first things you need to consider is how much you can afford. Take a look at your budget, and determine the monthly amount you have available for payment. While you might think it’s always going to be cheaper to rent, you might be surprised — in some areas, monthly rent payments outpace monthly mortgages. However, if buying is in the cards, you’ll need more money than just a monthly payment – including a down-payment, inspection fees and more.
However, don’t buy just to buy — especially if it’s your first home. A home is a major purchase, and you want to make sure to choose something you love in an area you love. (Talk to us about how to find the right home for your needs.)
2. How long do you plan to be in your next location or home?
Next, think of the future. Of course it’s impossible to predict exactly what will happen in your life, but try to at least outline your goals – starting with how long you think you’ll be in the house. Are you wanting a “forever home,” or is this just a stepping stone? Are you looking for a new home to start or grow your family, or are you downsizing after kids have left? Are you moving for a (possibly) temporary position, or for a long-term career move?
Knowing approximately how long you’ll be in a home combined with what life events may occur within that time will help you decide to buy or rent – and how much space you might need. If too many decisions are up in the air, then renting may be financially easier or give you an “out” if you need to quickly relocate again. However, if you have a general sense of the future and can afford the space you need, then it’s a better idea to start building equity and purchase a home.
3. Do you understand all the costs involved?
As mentioned in #1 above, your monthly mortgage payment may be less than a monthly rental payment – but you can’t discount the upfront costs of buying a home, like down payment, possible closing costs, homeowner’s insurance, any maintenance costs, utilities as well as potential homeowner’s association fees. However, a home is an opportunity to build equity and appreciate some tax breaks. Homes are one of the only purchases where the value has a good chance at appreciating over time, so you can actually make money once you sell. If renting is the way to go, take other costs into consideration like a security payment, utilities/amenities, any maintenance you’ll be on the hook for and possible future rent hikes.
4. What do you want to do?
Finally, examine your personality and wants as a person. Owning a home comes with a lot of freedom. You can paint and remodel and renovate however you choose. You are able to really make the home yours. Love to garden? Go out and plant you one. Rooms too dark? Install additional ceiling lights. However, it also comes with a lot of responsibility. Do you prefer to mow the lawn and fix the plumbing, or do you want a landlord who’s in charge of those items?
The rent vs. buy discussion is an important one to make in your life, and you might have to make it more than once. We’re always here to offer advice or run the numbers, so let’s grab some coffee if you’re ready to learn more.