Renting vs. Buying

October 13, 2016

The decision to rent or to buy a home depends on many factors. Buying a home is a big financial decision. It’s not always the smartest decision just to buy because you’d rather own. Here are a few factors to consider first.

How Long will you Stay?

Buying a home is a large commitment. You don’t want to buy a home just to sell it a couple years later. If you don’t plan on staying in the home for at least five years, you’re probably better off renting.

What’s the Real Cost of Buying?

Many make the mistake of simply comparing what they pay in rent to the mortgage payment they’d take on if they bought a house. There’s more to the cost of buying than the monthly mortgage payment. Make sure you consider home insurance, taxes and maintenance before making the decision.

Do you have Enough for a Down Payment?

Saving for a down payment is one of the best reasons to continue to rent. It’s best to put down at least 20%, even if you will be approved at just 10% down. Putting 20% down will allow you to avoid paying mortgage insurance and you will also start with some equity in the home.

Can you Afford Closing Costs?

Along with the down payment, you may need to pay closing costs for the home. If you cannot afford this expense, it may be wise to continue to rent, until you can save enough for closing costs.

How’s your Credit?

Sometimes, it’s better to rent for another year or two in order to get your credit in order. If your credit score isn’t very high, you may need the time to repair your credit before applying for a mortgage. Even if you may be able to get approved now, it’s possible that renting for another year or two may allow you to save tens of thousands of dollars by getting a lower interest rate.

Is your Employment Stable?

Stable employment makes a difference when you buy a home. The last thing you want is to sign a new mortgage just to lose your job or source of income a few months later. If you don’t have stable employment, it may be smart to continue to rent.

Related: 10 Reasons you Should Never Sell or Buy Real Estate without an Agent

If everything is in order financially and you know you will be staying in the home for at least 5 years, buying makes quite a bit of sense. You’ll still need a down payment and money for closing costs, however.