There are many considerations when deciding whether to rent or buy. You have to take a look at where you are in your life and if you are financially ready to be a homeowner. Generally, in the long term it’s better to buy, but each situation requires careful thought and planning. Here are some financial questions to ask yourself to help you decide whether buying or renting is the right move.
Can I commit to a location for at least 5 years?
If you are unsure where you want to live in the next few years, it may be better to rent vs. buying a home. You also have more flexibility if you are renting and need to relocate. You may not want to put the time and money into buying a house if your job is changing or if you are planning a move in the near future. Plus, it can take time to sell a house if you do need to move.
Can I afford it?
In some areas of the country, renting a home may be more cost effective vs. buying based on the local housing market. In areas such as San Francisco or New York City, renting may be a better option, since home prices are typically higher in these metropolitan areas. In other parts of the country, it’s cheaper to buy rather than rent, since homes are much more affordable.
Do I have enough money for a down payment?
Ideally, you’d want to have 20% to put down on a home to avoid paying Private Mortgage Insurance (PMI). If you don’t have that much money to put down, you may still be able to buy a home vs rent, but you’ll have to pay PMI so your monthly mortgage payment will be higher. At least a few years before you buy a home, you should start saving money for that down payment, plus a little extra saved in the bank. While there are programs for first time home buyers, you want to be in your most positive financial position before you take that important step to home ownership.
Can I afford maintenance on a house?
When renting a home, maintenance is likely included in your rent. When you buy a home, you have to make sure you have enough cash or available credit to cover things like snow removal, lawn care, repairs of appliances or fixing issues like a leaky pipe. However, owning a home gives you more control over the environment in which you live and how it looks. Yes, you have to purchase and repair everything, but you can make your home exactly how you want it to be..
While you may pay less per month renting, know that you aren’t building any equity. When you buy a home, interest on your mortgage loan may be tax deductible and that may help you save money on taxes. Consult your tax advisor to learn more. When you pay your mortgage each month, you build equity and will end up owning your home at the end of your mortgage term.
Renting vs. buying a home
Consider these points and use our simple rent vs. buy calculator to see which option is better for you right now. If you are ready to become a homeowner, Freedom Mortgage is here to help you achieve your dreams of becoming a homeowner. Get started today!